Investors looking for stocks in the Retail - Restaurants sector might want to consider either Chuy's Holdings (CHUY) or 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.
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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Chuy's Holdings and Yum China Holdings are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that CHUY's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
CHUY currently has a forward P/E ratio of 23.54, while YUMC has a forward P/E of 25.81. We also note that CHUY has a PEG ratio of 1.34. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. YUMC currently has a PEG ratio of 2.88.
Another notable valuation metric for CHUY is its P/B ratio of 2.24. 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, YUMC has a P/B of 5.78.
Based on these metrics and many more, CHUY holds a Value grade of B, while YUMC has a Value grade of C.
CHUY has seen stronger estimate revision activity and sports more attractive valuation metrics than YUMC, so it seems like value investors will conclude that CHUY is the superior option right now.