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ARCO or CMG: Which Is the Better Value Stock Right Now?
Investors looking for stocks in the Retail - Restaurants sector might want to consider either Arcos Dorados (ARCO - Free Report) or Chipotle Mexican Grill (CMG - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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.
Currently, Arcos Dorados has a Zacks Rank of #2 (Buy), while Chipotle Mexican Grill has a Zacks Rank of #4 (Sell). Investors should feel comfortable knowing that ARCO likely has seen a stronger improvement to its earnings outlook than CMG has recently. But this is just one piece of the puzzle for value investors.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
ARCO currently has a forward P/E ratio of 12.89, while CMG has a forward P/E of 37.47. We also note that ARCO has a PEG ratio of 1.11. 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 1.42.
Another notable valuation metric for ARCO is its P/B ratio of 6.83. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, CMG has a P/B of 18.15.
These metrics, and several others, help ARCO earn a Value grade of A, while CMG has been given a Value grade of F.
ARCO is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that ARCO is likely the superior value option right now.