Investors interested in Retail - Restaurants stocks are likely familiar with Bloomin' Brands (BLMN) and Chipotle Mexican Grill (NYSE:CMG). But which of these two companies is the best option for those looking for undervalued stocks? 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.
Bloomin' Brands and Chipotle Mexican Grill are both sporting a Zacks Rank of # 2 (Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is only part of the picture for value investors.
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 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.
BLMN currently has a forward P/E ratio of 12.63, while CMG has a forward P/E of 50.45. We also note that BLMN has a PEG ratio of 1.15. 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. CMG currently has a PEG ratio of 2.62.
Another notable valuation metric for BLMN is its P/B ratio of 13.15. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, CMG has a P/B of 15.32.
These metrics, and several others, help BLMN earn a Value grade of A, while CMG has been given a Value grade of F.
Both BLMN and CMG are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that BLMN is the superior value option right now.
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