EWCZ vs. ELF: Which Stock Is the Better Value Option?

Investors interested in Cosmetics stocks are likely familiar with European Wax Center, Inc. (EWCZ) and e.l.f. Beauty (ELF). 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

European Wax Center, Inc. and e.l.f. Beauty are sporting Zacks Ranks of #1 (Strong Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that EWCZ is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.

EWCZ currently has a forward P/E ratio of 9.35, while ELF has a forward P/E of 34.47. We also note that EWCZ has a PEG ratio of 0.51. 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. ELF currently has a PEG ratio of 2.08.

Another notable valuation metric for EWCZ is its P/B ratio of 3.21. 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, ELF has a P/B of 9.28.

These are just a few of the metrics contributing to EWCZ's Value grade of A and ELF's Value grade of F.

EWCZ has seen stronger estimate revision activity and sports more attractive valuation metrics than ELF, so it seems like value investors will conclude that EWCZ is the superior option right now.

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

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