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LOCO vs. SBUX: Which Stock Should Value Investors Buy Now?

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Investors looking for stocks in the Retail - Restaurants sector might want to consider either El Pollo Loco Holdings (LOCO - Free Report) or Starbucks (SBUX - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? 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.

El Pollo Loco Holdings has a Zacks Rank of #2 (Buy), while Starbucks has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that LOCO is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.

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.

Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.

LOCO currently has a forward P/E ratio of 18.23, while SBUX has a forward P/E of 22.41. We also note that LOCO has a PEG ratio of 1.22. 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. SBUX currently has a PEG ratio of 1.60.

Another notable valuation metric for LOCO is its P/B ratio of 1.78. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, SBUX has a P/B of 19.85.

Based on these metrics and many more, LOCO holds a Value grade of B, while SBUX has a Value grade of D.

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


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