Investors with an interest in Retail - Restaurants stocks have likely encountered both El Pollo Loco Holdings (LOCO) and Texas Roadhouse (TXRH). 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, El Pollo Loco Holdings has a Zacks Rank of #2 (Buy), while Texas Roadhouse has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that LOCO is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
LOCO currently has a forward P/E ratio of 17.84, while TXRH has a forward P/E of 24.80. We also note that LOCO has a PEG ratio of 1.78. 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 2.20.
Another notable valuation metric for LOCO is its P/B ratio of 2.06. 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 4.87.
Based on these metrics and many more, LOCO holds a Value grade of B, while TXRH has a Value grade of C.
LOCO sticks out from TXRH in both our Zacks Rank and Style Scores models, so value investors will likely feel that LOCO is the better option right now.