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Should Value Investors Buy El Pollo Loco (LOCO) Stock?
Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.
Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.
On top of the Zacks Rank, investors can also look at our innovative Style Scores system to find stocks with specific traits. For example, value investors will want to focus on the "Value" category. Stocks with high Zacks Ranks and "A" grades for Value will be some of the highest-quality value stocks on the market today.
One company to watch right now is El Pollo Loco (LOCO - Free Report) . LOCO is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A. The stock holds a P/E ratio of 12.88, while its industry has an average P/E of 26.74. Over the past year, LOCO's Forward P/E has been as high as 16.11 and as low as 11.70, with a median of 13.99.
Value investors also frequently use the P/S ratio. This metric is found by dividing a stock's price with the company's revenue. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. LOCO has a P/S ratio of 0.75. This compares to its industry's average P/S of 0.79.
Finally, we should also recognize that LOCO has a P/CF ratio of 9.09. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 23.34. Within the past 12 months, LOCO's P/CF has been as high as 10.11 and as low as 6.06, with a median of 8.43.
These are only a few of the key metrics included in El Pollo Loco's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, LOCO looks like an impressive value stock at the moment.