ARCO or CMG: Which Is the Better Value Stock Right Now?
Investors with an interest in Retail - Restaurants stocks have likely encountered both Arcos Dorados (ARCO) and Chipotle Mexican Grill (CMG). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Arcos Dorados and Chipotle Mexican Grill are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that ARCO's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle 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.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
ARCO currently has a forward P/E ratio of 15.02, while CMG has a forward P/E of 52.75. We also note that ARCO has a PEG ratio of 0.44. 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. CMG currently has a PEG ratio of 2.26.
Another notable valuation metric for ARCO is its P/B ratio of 7.23. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, CMG has a P/B of 22.10.
These metrics, and several others, help ARCO earn a Value grade of A, while CMG has been given a Value grade of D.
ARCO 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 ARCO is likely the superior value option right now.
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Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
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