Investors looking for stocks in the Retail - Restaurants sector might want to consider either Del Taco Restaurants (TACO) or Texas Roadhouse (TXRH). 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.
Del Taco Restaurants and Texas Roadhouse are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that TACO likely has seen a stronger improvement to its earnings outlook than TXRH has recently. But this is only part of the picture 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.
TACO currently has a forward P/E ratio of 37.52, while TXRH has a forward P/E of 228.92. We also note that TACO has a PEG ratio of 2.50. 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. TXRH currently has a PEG ratio of 22.89.
Another notable valuation metric for TACO is its P/B ratio of 1.69. 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 4.90.
Based on these metrics and many more, TACO holds a Value grade of B, while TXRH has a Value grade of C.
TACO sticks out from TXRH in both our Zacks Rank and Style Scores models, so value investors will likely feel that TACO is the better option right now.
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Del Taco Restaurants, Inc. (TACO) : Free Stock Analysis Report
Texas Roadhouse, Inc. (TXRH) : Free Stock Analysis Report
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