Investors interested in Retail - Restaurants stocks are likely familiar with Ruth's Hospitality (RUTH - Free Report) and Chipotle Mexican Grill (CMG - 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, both Ruth's Hospitality and Chipotle Mexican Grill are holding a Zacks Rank of # 2 (Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. 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 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.
RUTH currently has a forward P/E ratio of 15.65, while CMG has a forward P/E of 59.76. We also note that RUTH has a PEG ratio of 1.16. 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. CMG currently has a PEG ratio of 3.03.
Another notable valuation metric for RUTH is its P/B ratio of 7.53. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, CMG has a P/B of 14.20.
Based on these metrics and many more, RUTH holds a Value grade of B, while CMG has a Value grade of D.
Both RUTH and CMG are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that RUTH is the superior value option right now.