CAKE vs. BROS: Which Stock Is the Better Value Option?

Investors who are focused on the retail and restaurants sector are likely familiar with both Cheesecake Factory (CAKE) and Dutch Bros (BROS). Both of these stocks have caught the attention of value investors, but which one offers a better value proposition? To find out, we need to take a closer look at their financial metrics.

There are various methods that investors use to identify value stocks, and one effective strategy combines the Zacks Rank with an excellent score in the Value category from the Style Scores system. The Zacks Rank focuses on companies that show positive earnings estimate revisions, while the Style Scores assess stocks based on particular characteristics.

At present, both Cheesecake Factory and Dutch Bros possess a Zacks Rank of #2 (Buy). This indicates that both companies have experienced positive adjustments in their earnings estimates, creating a reassuring outlook for investors. Still, value investors consider more than just earnings revisions when evaluating stocks.

Value investors typically employ a range of traditional metrics to find stocks they believe are undervalued relative to their current prices. These metrics include commonly referenced figures such as the P/E ratio, P/S ratio, earnings yield, and cash flow per share, among other fundamental aspects that value investors prioritize.

When we analyze the forward P/E ratios for both companies, we find that CAKE has a forward P/E of 14.35, in stark contrast to BROS, which sports a significantly higher forward P/E of 114.38. Additionally, CAKE's PEG ratio stands at 1.30. This ratio is similar to the P/E ratio but also accounts for the company’s expected earnings growth rate. Meanwhile, BROS has a PEG ratio of 4.10, indicating much less value for growth.

Another key metric to consider for CAKE is its P/B ratio, which is currently at 6.09. The P/B ratio helps investors assess the market value of a stock in relation to its book value, which is calculated as total assets minus total liabilities. In comparison, BROS shows a P/B ratio of 9.46.

Given these valuation metrics and several others, CAKE earns a Value grade of A, while BROS is rated F in the Value category.

While both CAKE and BROS are capable stocks that promise strong earnings prospects, the valuation metrics suggest that CAKE is the more compelling value investment at this moment in time.

Stocks, Value, Investing