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ARCO or CMG: Which Is the Better Value Stock Right Now?
Investors interested in Retail - Restaurants stocks are likely familiar with Arcos Dorados (ARCO - Free Report) and Chipotle Mexican Grill (CMG - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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.
Currently, Arcos Dorados has 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. 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
ARCO currently has a forward P/E ratio of 15.02, while CMG has a forward P/E of 35.51. We also note that ARCO has a PEG ratio of 1.29. 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. CMG currently has a PEG ratio of 1.32.
Another notable valuation metric for ARCO is its P/B ratio of 7.44. 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, CMG has a P/B of 18.01.
Based on these metrics and many more, ARCO holds a Value grade of A, while CMG has a Value grade of D.
ARCO stands above CMG thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ARCO is the superior value option right now.