YUMC or CMG: Which Is the Better Value Stock Right Now?
Investors interested in Retail - Restaurants stocks are likely familiar with Yum China Holdings (YUMC) and Chipotle Mexican Grill (CMG). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Yum China Holdings is sporting a Zacks Rank of #2 (Buy), while Chipotle Mexican Grill has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that YUMC is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
YUMC currently has a forward P/E ratio of 13.77, while CMG has a forward P/E of 26.88. We also note that YUMC has a PEG ratio of 1.07. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. CMG currently has a PEG ratio of 1.88.
Another notable valuation metric for YUMC is its P/B ratio of 2.34. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, CMG has a P/B of 17.7.
These metrics, and several others, help YUMC earn a Value grade of A, while CMG has been given a Value grade of D.
YUMC is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that YUMC is likely the superior value option right now.
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Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
