Investors interested in stocks from the Retail - Restaurants sector have probably already heard of Red Robin (RRGB) and Chipotle Mexican Grill (CMG). But which of these two stocks presents investors with the better value opportunity right now? 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, both Red Robin and Chipotle Mexican Grill are sporting a Zacks Rank of # 2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. 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 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.
RRGB currently has a forward P/E ratio of 31.26, while CMG has a forward P/E of 62.67. We also note that RRGB has a PEG ratio of 3.23. 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. CMG currently has a PEG ratio of 3.40.
Another notable valuation metric for RRGB is its P/B ratio of 1.12. 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, CMG has a P/B of 15.17.
These metrics, and several others, help RRGB earn a Value grade of A, while CMG has been given a Value grade of F.
Both RRGB and CMG are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that RRGB is the superior value option right now.
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Red Robin Gourmet Burgers, Inc. (RRGB) : Free Stock Analysis Report
Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
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