YUMC or CMG: Which Is the Better Value Stock Right Now?

Investors looking for stocks in the Retail - Restaurants sector might want to consider either Yum China Holdings (YUMC) or Chipotle Mexican Grill (CMG). 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.

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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Currently, Yum China Holdings has a Zacks Rank of #2 (Buy), while Chipotle Mexican Grill 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 YUMC has an improving earnings outlook. But this is only part of the picture for value investors.

Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their current share price levels.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

YUMC currently has a forward P/E ratio of 15.16, while CMG has a forward P/E of 33.63. We also note that YUMC has a PEG ratio of 1.18. 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. CMG currently has a PEG ratio of 2.36.

Another notable valuation metric for YUMC is its P/B ratio of 2.58. 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, CMG has a P/B of 22.16.

These are just a few of the metrics contributing to YUMC's Value grade of A and CMG's Value grade of F.

YUMC is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that YUMC is likely the superior value option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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