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LOCO vs. QSR: 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) and Restaurant Brands (QSR - 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.

There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. 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 Restaurant Brands 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 QSR has recently. However, value investors will care about much more than just this.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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.

LOCO currently has a forward P/E ratio of 18.55, while QSR has a forward P/E of 21.93. We also note that LOCO has a PEG ratio of 1.86. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. QSR currently has a PEG ratio of 1.97.

Another notable valuation metric for LOCO is its P/B ratio of 2.14. 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, QSR has a P/B of 4.79.

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