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ARCO vs. CMG: Which Stock Is the Better Value Option?

ARCO vs. CMG: Which Stock Is the Better Value Option?

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This story originally appeared on Zacks

Investors with an interest in Retail - Restaurants stocks have likely encountered both Arcos Dorados (ARCO) and 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.

- Zacks

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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Arcos Dorados and Chipotle Mexican Grill are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. Investors should feel comfortable knowing that ARCO 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 also try to analyze a wide range of traditional figures and metrics to help determine whether 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.

ARCO currently has a forward P/E ratio of 62.71, while CMG has a forward P/E of 69.82. We also note that ARCO has a PEG ratio of 1.46. 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 3.49.

Another notable valuation metric for ARCO is its P/B ratio of 5.99. 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 21.29.

These metrics, and several others, help ARCO earn a Value grade of B, while CMG has been given a Value grade of D.

ARCO stands above CMG thanks to its solid earnings outlook, and based on these valuation figures, we also feel that ARCO is the superior value option right now.



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Arcos Dorados Holdings Inc. (ARCO): Free Stock Analysis Report

 

Chipotle Mexican Grill, Inc. (CMG): Free Stock Analysis Report

 

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