Are Restaurants The Next Great Value Stocks?

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Welcome to Episode #15 of the Value Investor Podcast

Every week, Zacks value stock strategist and the Editor of Zacks Value Investor portfolio service, Tracey Ryniec, talks about all things happening in the value stock universe, including her top stock picks.

This week, Tracey looks into an industry that used to be expensive but that, after the stocks have slid, is a place to find value stocks.

The restaurant industry was one of the hottest of 2014 and 2015 with a dozen new restaurant IPOs and some of the biggest high growth stock names including Chipotle (CMG) and Shake Shack (NYSE:SHAK).

But worries about challenging economic conditions and a consumer that was pulling back on eating out, has sent the stocks in the industry on a downward spiral.

Suddenly, expensive stocks were now cheaper.

But are they cheap enough to be value stocks?

Tracey ran a screen to see if any of the restaurant stocks were a genuine value only by looking at valuation.

4 Restaurant Stocks Value Investors Should Keep on Their Short List

1. Fogo de Chao, Inc. (FOGO), the Brazilian steakhouse, trades with a forward P/E of just 13.5.

2. Red Robin Gourmet Burger (RRGB) recently closed all of its Red Robin Burger Works urban store concepts. Are burger chains in trouble? Its forward P/E is 15.7.

3. Bojangles (BOJA), the southeastern chicken chain, has a forward P/E of 17.5.

4. El Pollo Loco (LOCO), the California chicken chain, has a forward P/E of 17.9.

None of these chains have reported earnings yet this earnings season. Investors should look at fundamentals, such as earnings growth or declines, in addition to valuation before deciding to buy a stock.

Value investors have more to look at besides just finding a cheap stock.

The restaurants are Tracey’s favorite sector. Find out what she thinks about these cheap stocks and whether or not value investors should dive in on this week’s podcast.

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