Investors interested in stocks from the Retail - Restaurants sector have probably already heard of Texas Roadhouse (TXRH - Free Report) and Chipotle Mexican Grill (CMG - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, both Texas Roadhouse and Chipotle Mexican Grill are sporting a Zacks Rank of # 2 (Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. 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.
TXRH currently has a forward P/E ratio of 15.09, while CMG has a forward P/E of 32.55. We also note that TXRH has a PEG ratio of 1.51. 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. CMG currently has a PEG ratio of 1.69.
Another notable valuation metric for TXRH is its P/B ratio of 3.04. 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 9.96.
Based on these metrics and many more, TXRH holds a Value grade of B, while CMG has a Value grade of D.
Both TXRH and CMG are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that TXRH is the superior value option right now.