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ARCO or WEN: Which Is the Better Value Stock Right Now?

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Investors looking for stocks in the Retail - Restaurants sector might want to consider either Arcos Dorados (ARCO - Free Report) or Wendy's (WEN - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? 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 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.

Arcos Dorados and Wendy's are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that ARCO is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.

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 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.

ARCO currently has a forward P/E ratio of 15.73, while WEN has a forward P/E of 23.12. We also note that ARCO has a PEG ratio of 0.46. 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. WEN currently has a PEG ratio of 1.83.

Another notable valuation metric for ARCO is its P/B ratio of 6.08. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, WEN has a P/B of 9.02.

Based on these metrics and many more, ARCO holds a Value grade of A, while WEN has a Value grade of C.

ARCO stands above WEN thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ARCO is the superior value option right now.


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The Wendy's Company (WEN) - free report >>

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