Investors looking for stocks in the Beverages - Soft drinks sector might want to consider either Fomento Economico (FMX) or Dutch Bros (BROS). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Fomento Economico has a Zacks Rank of #2 (Buy), while Dutch Bros has a Zacks Rank of #4 (Sell) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that FMX is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.
FMX currently has a forward P/E ratio of 18.49, while BROS has a forward P/E of 159.51. We also note that FMX has a PEG ratio of 2.11. 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. BROS currently has a PEG ratio of 4.74.
Another notable valuation metric for FMX is its P/B ratio of 1.50. 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, BROS has a P/B of 6.09.
These metrics, and several others, help FMX earn a Value grade of A, while BROS has been given a Value grade of D.
FMX has seen stronger estimate revision activity and sports more attractive valuation metrics than BROS, so it seems like value investors will conclude that FMX is the superior option right now.