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Investors interested in Retail - Restaurants stocks are likely familiar with Cheesecake Factory (CAKE) 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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Right now, both Cheesecake Factory and Chipotle Mexican Grill are sporting a Zacks Rank of # 2 (Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is just one piece of the puzzle 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.
CAKE currently has a forward P/E ratio of 14.03, while CMG has a forward P/E of 44.16. We also note that CAKE has a PEG ratio of 1.27. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. CMG currently has a PEG ratio of 1.96.
Another notable valuation metric for CAKE is its P/B ratio of 6.67. 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 21.98.
These metrics, and several others, help CAKE earn a Value grade of A, while CMG has been given a Value grade of F.
Both CAKE and CMG are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that CAKE is the superior value option right now.
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The Cheesecake Factory Incorporated (CAKE) : Free Stock Analysis Report