Investors with an interest in Retail - Restaurants stocks have likely encountered both Habit Restaurants (HABT - Free Report) and Noodles & Co. (NDLS - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great 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.
Currently, Habit Restaurants has a Zacks Rank of #2 (Buy), while Noodles & Co. has a Zacks Rank of #3 (Hold). This means that HABT's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture 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.
HABT currently has a forward P/E ratio of 283.13, while NDLS has a forward P/E of 294.29. We also note that HABT has a PEG ratio of 10.11. 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. NDLS currently has a PEG ratio of 33.63.
Another notable valuation metric for HABT is its P/B ratio of 2.64. 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, NDLS has a P/B of 16.26.
These are just a few of the metrics contributing to HABT's Value grade of B and NDLS's Value grade of D.
HABT stands above NDLS thanks to its solid earnings outlook, and based on these valuation figures, we also feel that HABT is the superior value option right now.