Investors looking for stocks in the Retail - Restaurants sector might want to consider either First Watch Restaurant Group, Inc. (FWRG) or Chipotle Mexican Grill (CMG). 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.
First Watch Restaurant Group, Inc. and Chipotle Mexican Grill are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that FWRG likely has seen a stronger improvement to its earnings outlook than CMG has recently. However, value investors will care about much more than just this.
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 Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
FWRG currently has a forward P/E ratio of 41.89, while CMG has a forward P/E of 49.90. We also note that FWRG has a PEG ratio of 0.97. 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 1.92.
Another notable valuation metric for FWRG is its P/B ratio of 1.90. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, CMG has a P/B of 20.90.
Based on these metrics and many more, FWRG holds a Value grade of A, while CMG has a Value grade of D.
FWRG stands above CMG thanks to its solid earnings outlook, and based on these valuation figures, we also feel that FWRG is the superior value option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report