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

Zacks Equity Research

Investors interested in stocks from the Retail - Restaurants sector have probably already heard of Chuy's Holdings (CHUY) and Yum China Holdings (YUMC). 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.

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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Currently, Chuy's Holdings has a Zacks Rank of #1 (Strong Buy), while Yum China Holdings has a Zacks Rank of #4 (Sell). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that CHUY has an improving earnings outlook. But this is just one piece of the puzzle for value investors.

Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.

CHUY currently has a forward P/E ratio of 25.02, while YUMC has a forward P/E of 25.37. We also note that CHUY has a PEG ratio of 1.43. 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. YUMC currently has a PEG ratio of 2.69.

Another notable valuation metric for CHUY is its P/B ratio of 1.99. 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, YUMC has a P/B of 5.31.

These metrics, and several others, help CHUY earn a Value grade of B, while YUMC has been given a Value grade of C.

CHUY 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 CHUY is likely the superior value option right now.


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