Investors interested in stocks from the Retail - Restaurants sector have probably already heard of Texas Roadhouse (TXRH - Free Report) and Restaurant Brands (QSR - 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, both Texas Roadhouse and Restaurant Brands are holding a Zacks Rank of # 2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. However, value investors will care about much more than just this.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.
TXRH currently has a forward P/E ratio of 22.36, while QSR has a forward P/E of 26.15. We also note that TXRH has a PEG ratio of 1.99. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. QSR currently has a PEG ratio of 2.76.
Another notable valuation metric for TXRH is its P/B ratio of 3.95. 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, QSR has a P/B of 4.57.
These metrics, and several others, help TXRH earn a Value grade of B, while QSR has been given a Value grade of C.
Both TXRH and QSR are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that TXRH is the superior value option right now.