Investors looking for stocks in the Retail - Restaurants sector might want to consider either Darden Restaurants (DRI) or Texas Roadhouse (TXRH). But which of these two stocks presents investors with the better value opportunity right now? Let's 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.
Darden Restaurants and Texas Roadhouse are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that DRI'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 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.
DRI currently has a forward P/E ratio of 28.73, while TXRH has a forward P/E of 319.80. We also note that DRI has a PEG ratio of 2.87. 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. TXRH currently has a PEG ratio of 31.98.
Another notable valuation metric for DRI is its P/B ratio of 3.65. 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, TXRH has a P/B of 3.94.
Based on these metrics and many more, DRI holds a Value grade of A, while TXRH has a Value grade of D.
DRI stands above TXRH thanks to its solid earnings outlook, and based on these valuation figures, we also feel that DRI is the superior value option right now.
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Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report
Texas Roadhouse, Inc. (TXRH) : Free Stock Analysis Report
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