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LOCO vs. TXRH: Which Stock Should Value Investors Buy Now?

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Investors interested in stocks from the Retail - Restaurants sector have probably already heard of El Pollo Loco Holdings (LOCO - Free Report) and Texas Roadhouse (TXRH - 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 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.

Right now, El Pollo Loco Holdings is sporting a Zacks Rank of #2 (Buy), while Texas Roadhouse 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 LOCO has an improving earnings outlook. However, value investors will care about much more than just this.

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.

LOCO currently has a forward P/E ratio of 19.11, while TXRH has a forward P/E of 25.45. We also note that LOCO has a PEG ratio of 1.91. 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. TXRH currently has a PEG ratio of 2.15.

Another notable valuation metric for LOCO is its P/B ratio of 2.05. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, TXRH has a P/B of 4.67.

These are just a few of the metrics contributing to LOCO's Value grade of B and TXRH's Value grade of C.

LOCO 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 LOCO is likely the superior value option right now.



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