Back to top

Image: Bigstock

LOCO vs. TXRH: Which Stock Is the Better Value Option?

Read MoreHide Full Article

Investors interested in stocks from the Retail - Restaurants sector have probably already heard of El Pollo Loco Holdings (LOCO) and Texas Roadhouse (TXRH - Free Report) . But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Currently, El Pollo Loco Holdings has a Zacks Rank of #2 (Buy), while Texas Roadhouse has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that LOCO likely has seen a stronger improvement to its earnings outlook than TXRH has recently. But this is just one piece of the puzzle for value investors.

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.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

LOCO currently has a forward P/E ratio of 20.51, while TXRH has a forward P/E of 24.40. We also note that LOCO has a PEG ratio of 2.05. 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. TXRH currently has a PEG ratio of 2.17.

Another notable valuation metric for LOCO is its P/B ratio of 2.17. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, TXRH has a P/B of 4.40.

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.


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Texas Roadhouse, Inc. (TXRH) - free report >>

Published in