Investors looking for stocks in the Retail - Restaurants sector might want to consider either Potbelly (PBPB) or Shake Shack (SHAK). But which of these two companies is the best option for those looking for undervalued stocks? 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, Potbelly is sporting a Zacks Rank of #2 (Buy), while Shake Shack has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that PBPB has an improving earnings outlook. However, value investors will care about much more than just this.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
PBPB currently has a forward P/E ratio of 26.09, while SHAK has a forward P/E of 74.38. We also note that PBPB has a PEG ratio of 1.49. 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. SHAK currently has a PEG ratio of 3.31.
Another notable valuation metric for PBPB is its P/B ratio of 1.86. 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, SHAK has a P/B of 7.16.
These metrics, and several others, help PBPB earn a Value grade of A, while SHAK has been given a Value grade of D.
PBPB has seen stronger estimate revision activity and sports more attractive valuation metrics than SHAK, so it seems like value investors will conclude that PBPB is the superior option right now.
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Potbelly Corporation (PBPB) : Free Stock Analysis Report
Shake Shack, Inc. (SHAK) : Free Stock Analysis Report
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