Investors looking for stocks in the Retail - Restaurants sector might want to consider either Yum China Holdings (YUMC) or Shake Shack (SHAK). 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.
Right now, Yum China Holdings is sporting a Zacks Rank of #2 (Buy), while Shake Shack has a Zacks Rank of #5 (Strong Sell). This means that YUMC's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one factor that value investors are interested in.
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 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.
YUMC currently has a forward P/E ratio of 17.02, while SHAK has a forward P/E of 61.86. We also note that YUMC has a PEG ratio of 1.58. 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. SHAK currently has a PEG ratio of 2.39.
Another notable valuation metric for YUMC is its P/B ratio of 2.8. 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, SHAK has a P/B of 7.36.
These are just a few of the metrics contributing to YUMC's Value grade of A and SHAK's Value grade of D.
YUMC 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 YUMC is likely the superior value option right now.
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Yum China (YUMC): Free Stock Analysis Report Shake Shack, Inc. (SHAK): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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