YUMC vs. BROS: Which Stock Is the Better Value Option?

Investors with an interest in Retail - Restaurants stocks have likely encountered both Yum China Holdings (YUMC) and Dutch Bros (BROS). 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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Currently, Yum China Holdings has a Zacks Rank of #2 (Buy), while Dutch Bros 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 YUMC is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle 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.

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 19.04, while BROS has a forward P/E of 59.15. We also note that YUMC has a PEG ratio of 1.57. 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. BROS currently has a PEG ratio of 1.75.

Another notable valuation metric for YUMC is its P/B ratio of 3.16. 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, BROS has a P/B of 9.88.

These are just a few of the metrics contributing to YUMC's Value grade of B and BROS's Value grade of F.

YUMC sticks out from BROS in both our Zacks Rank and Style Scores models, so value investors will likely feel that YUMC is the better option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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