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

Investors interested in stocks from the Retail - Restaurants sector have probably already heard of Arcos Dorados (ARCO) and Restaurant Brands (QSR). 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 Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Arcos Dorados and Restaurant Brands are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that ARCO has an improving earnings outlook. But this is only part of the picture for value investors.

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.

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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 12.26, while QSR has a forward P/E of 24.81. We also note that ARCO has a PEG ratio of 1.29. 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. QSR currently has a PEG ratio of 2.83.

Another notable valuation metric for ARCO is its P/B ratio of 5.23. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, QSR has a P/B of 5.51.

Based on these metrics and many more, ARCO holds a Value grade of A, while QSR has a Value grade of D.

ARCO has seen stronger estimate revision activity and sports more attractive valuation metrics than QSR, so it seems like value investors will conclude that ARCO is the superior option right now.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Restaurant Brands International Inc. (QSR) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research