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Is Red Robin Gourmet (RRGB) a Great Stock for Value Investors?

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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 Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) 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:

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, Red Robin Gourmet has a trailing twelve months PE ratio of 26.96, as you can see in the chart below:

However, this level is somewhat unfavorable with the market at large, as the PE for the S&P 500 compares in at about 20.48. Also, if we focus on the stock’s long-term PE trend, the current level puts Red Robin Gourmet’s current PE ratio considerably above its midpoint (which is 23.88) over the past five years.

Nonetheless, the stock’s PE compares favorably with the Zacks classified Retail – Restaurants industry’s trailing twelve months PE ratio, which stands at 27.17. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Red Robin Gourmet has a forward PE ratio (price relative to this year’s earnings) of just 22.77, so it is fair to say that a slightly more value-oriented path may be ahead for Red Robin Gourmet stock in the near term too.

P/S Ratio

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, Red Robin Gourmet has a P/S ratio of about 0.63. This is significantly lower than the S&P 500 average, which comes in at 3.17 right now. Also, as we can see in the chart below, this is much below the highs for this stock in particular over the past few years.

If anything, this suggests some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Red Robin Gourmet currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes RRGB a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the P/CF ratio (another great indicator of value) comes in at 5.51, which is somewhat better than the industry average of 9.80. Clearly, RRGB is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Red Robin Gourmet 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 grade of ‘B’ and a Momentum score of ‘F’. This gives RRGB 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 mixed at best. The current quarter has seen one estimate go higher in the past sixty days and four lower, while the full year estimate has seen six upward and no downward revisions in the same time period.

This has had a mixed impact on the consensus estimate, as the current quarter consensus estimate has declined around 14.5% in the past two months, while the full year estimate has risen by about 4.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

This mixed trend indicates that while the stock’s growth story is intact over the medium term, analysts have some apprehensions about the stock in the immediate future. Also consider the fact that the company boasts a Zacks Rank #1 (Strong Buy), which indicates robust fundamentals and expectations of outperformance in the near term. Thus, we can say that while investors may expect slight short-term pain, Red Robin Gourmet remains a formidable value proposition, with strong supporting growth prospects.

Bottom Line

Red Robin Gourmet is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a good industry rank (top 39% out of more than 250 industries) and a top Zacks Rank, the company deserves attention right now. However, over the past one year, the Zacks Retail – Restaurants sector has clearly underperformed the broader market, as you can see below:

So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

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