Investors interested in Retail - Restaurants stocks are likely familiar with Cheesecake Factory (CAKE) and Texas Roadhouse (TXRH). But which of these two companies is the best option for those looking for undervalued stocks? 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 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.
Cheesecake Factory and Texas Roadhouse are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. Investors should feel comfortable knowing that CAKE likely has seen a stronger improvement to its earnings outlook than TXRH has recently. 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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
CAKE currently has a forward P/E ratio of 16.07, while TXRH has a forward P/E of 23.44. We also note that CAKE has a PEG ratio of 1.24. 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. TXRH currently has a PEG ratio of 2.08.
Another notable valuation metric for CAKE is its P/B ratio of 3.56. 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, TXRH has a P/B of 3.88.
These are just a few of the metrics contributing to CAKE's Value grade of B and TXRH's Value grade of C.
CAKE 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 CAKE is likely the superior value option right now.
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The Cheesecake Factory Incorporated (CAKE) : Free Stock Analysis Report
Texas Roadhouse, Inc. (TXRH) : Free Stock Analysis Report
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