Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put
El Pollo Loco Holdings, Inc. (stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks: LOCO Quick Quote LOCO - Free Report) PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, El Pollo Loco has a trailing twelve months PE ratio of 24.05, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 25.07. If we focus on the long-term PE trend, El Pollo Loco’s current PE level puts it below its midpoint over the past five years.
Further, the stock’s PE compares favorably with the Zacks Retail-Wholesale sector’s trailing twelve months PE ratio, which stands at 44.52. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that El Pollo Loco has a forward PE ratio (price relative to this year’s earnings) of just 23.21, so it is fair to say that a slightly more value-oriented path may be ahead for El Pollo Loco stock in the near term too.
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, El Pollo Loco has a P/S ratio of about 1.49. This is lower than the S&P 500 average, which comes in at 4.38 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
If anything, LOCO is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
El Pollo Loco currently has a Zacks Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes El Pollo Loco a solid choice for value investors. What About the Stock Overall?
Though El Pollo Loco might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of B and a Momentum Score of A. This gives LOCO a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores
here >> )
Meanwhile, the company’s recent earnings estimates have been encouraging. The current year has seen one estimate go lower in the past sixty days compared to no movement in the opposite direction, while the full year 2021 estimate has seen two upward revision compared to no downward in the same time period.
This has had a positive impact on the consensus estimate though as the current year consensus estimate has improved by 1.3% in the past two months, while the full year 2021 estimate has risen by 2.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite this positive trend, the stock has a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term.
El Pollo Loco is an inspired choice for value investors, as it is hard to beat its incredible line up of statistics on this front. A strong industry rank (among top 25% of more than 250 industries) further instils our confidence. In fact, over the past two years, the Zacks Retail – Restaurants industry has clearly outperformed the market at large, as you can see below:
So, despite a Zacks Rank #3, we believe that bullish analyst sentiment and favorable industry factors make this value stock a compelling pick.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot stocks we're targeting >>