NEW YORK (TheStreet) -- Over the past couple of weeks, growth-hungry investors have pushed away from the Yum! Brands (YUM) buffet. Value-seeking investors, on the other hand, should not hesitate to buy shares of a company that has been drastically oversold.
Shares, at around $72, are down 7% on the year to date -- worse than the restaurant sector's 1% decline. Since reaching a high of $83.58 less than a month ago Yum! has lost 16% of its value, in large part because of the recent scandal with its food suppliers in China.
Unfortunately, Yum! is no novice in this area. The company has suffered before from these types of incident and the stock has rebounded. The company could not be reached for comment.
China is the company's most important segment. Despite the recent disruptions the company just its full-year guidance of earnings per share growth at 20%, after the company delivered 30% year-over-year jump in earnings per share. Investors bailing on the stock are doing so for the wrong reasons.
The stock, which is trading at just 17 times next year's estimates of $4.11, is still cheap. With management's new restaurant initiatives focusing on healthy doses of protein to better compete with Chipotle Mexican Grill (CMG), these shares will regain $80 in the next 12 months. It's going to take time for the dust to settle.
As for the dust-up in China, there is very little companies can do to monitor the actions of contract suppliers, especially those in other countries. The responsibility is on the Chinese authorities.