Investors interested in stocks from the Retail - Restaurants sector have probably already heard of Yum China Holdings (YUMC) and Wendy's (WEN). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Yum China Holdings has a Zacks Rank of #2 (Buy), while Wendy's has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that YUMC has an improving earnings outlook. But this is just one factor that value investors are interested in.
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.
YUMC currently has a forward P/E ratio of 41.22, while WEN has a forward P/E of 42.89. We also note that YUMC has a PEG ratio of 4.35. 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. WEN currently has a PEG ratio of 6.19.
Another notable valuation metric for YUMC is its P/B ratio of 5.29. 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, WEN has a P/B of 10.48.
These are just a few of the metrics contributing to YUMC's Value grade of B and WEN's Value grade of D.
YUMC has seen stronger estimate revision activity and sports more attractive valuation metrics than WEN, so it seems like value investors will conclude that YUMC is the superior option right now.
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Yum China Holdings Inc. (YUMC): Free Stock Analysis Report
The Wendys Company (WEN): Free Stock Analysis Report
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