Kraft Heinz Trades at a Fraction of PepsiCo's Valuation. Is the Discount Deserved?
Investors must decide if Kraft Heinz is a value stock or a value trap.
Overview
When valuing a company, you need to look beyond the share price. It's important to use a metric like the price-to-earnings (P/E) ratio or price-to-sales (P/S) ratio to make an objective judgment.
However, that's only one part of the investing process. You have to see why a company trades at a relatively cheap valuation. Sometimes, the market is signaling long-term concerns, and in other cases, investors have become overly focused on short-term issues.
Details
You can't use the P/E ratio to evaluate Kraft Heinz (NYSE: KHC) due to its lack of earnings. But investors can apply the P/S ratio. On that basis, it trades at a much lower valuation than PepsiCo (NASDAQ: PEP).
Source
Originally published at www.fool.com.