Back to top

Image: Bigstock

ARCO vs. CMG: Which Stock Should Value Investors Buy Now?

Read MoreHide Full Article

Investors with an interest in Retail - Restaurants stocks have likely encountered both Arcos Dorados (ARCO - Free Report) and Chipotle Mexican Grill (CMG - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Right now, Arcos Dorados is sporting a Zacks Rank of #2 (Buy), while Chipotle Mexican Grill has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that ARCO has an improving earnings outlook. However, value investors will care about much more than just this.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their current share price levels.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

ARCO currently has a forward P/E ratio of 20.97, while CMG has a forward P/E of 51.46. We also note that ARCO has a PEG ratio of 0.67. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. CMG currently has a PEG ratio of 2.57.

Another notable valuation metric for ARCO is its P/B ratio of 7.70. 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, CMG has a P/B of 19.73.

Based on these metrics and many more, ARCO holds a Value grade of B, while CMG has a Value grade of D.

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


See More Zacks Research for These Tickers


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


Chipotle Mexican Grill, Inc. (CMG) - free report >>

Arcos Dorados Holdings Inc. (ARCO) - free report >>

Published in