Back to top

Image: Bigstock

TACO vs. TXRH: Which Stock Is the Better Value Option?

Read MoreHide Full Article

Investors with an interest in Retail - Restaurants stocks have likely encountered both Del Taco Restaurants (TACO - Free Report) and Texas Roadhouse (TXRH - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Del Taco Restaurants has a Zacks Rank of #2 (Buy), while Texas Roadhouse has a Zacks Rank of #3 (Hold) right now. This means that TACO's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.

The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.

TACO currently has a forward P/E ratio of 34.77, while TXRH has a forward P/E of 237.69. We also note that TACO has a PEG ratio of 2.32. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. TXRH currently has a PEG ratio of 23.77.

Another notable valuation metric for TACO is its P/B ratio of 1.57. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, TXRH has a P/B of 5.09.

These metrics, and several others, help TACO earn a Value grade of B, while TXRH has been given a Value grade of C.

TACO has seen stronger estimate revision activity and sports more attractive valuation metrics than TXRH, so it seems like value investors will conclude that TACO is the superior option right now.

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Del Taco Restaurants, Inc. (TACO) - free report >>

Texas Roadhouse, Inc. (TXRH) - free report >>

Published in