Double-digit growth is a tough thing for equity investors to find these days, but there’s still a good amount of it with restaurant stocks.
As a sector, restaurants remain a top area for speculative investors. The right chain at the right time can really make money for shareholders, especially when tastes change, as evidenced by the tremendous success of Chipotle Mexican Grill, Inc. (CMG).
Fiesta Restaurant Group
One business that has a lot of potential for growth going forward is Fiesta Restaurant Group, Inc. (FRGI).
The operator of Pollo Tropical and Taco Cabana chains has locations not only in the U.S. market, but the Caribbean and Central and South America too, which helps in the development of new food products to test in the marketplace.
As an enterprise, Fiesta Restaurant Group has done exceedingly well the last few years, and it’s made a tremendous amount of money for stockholders (with a few stomach-churning corrections along the way).
We’ve looked at this growing restaurant company several times before in these pages. The stock is always expensively priced, but that’s because it’s growing and investors are willing to pay for it. (See “Five Hot Restaurant Stocks for 2015.”)
Corporate Ownership Key to Fiesta’s Continued Success?
I like a restaurant chain to have a high percentage of corporate ownership of its stores, especially if the company is at an early stage of development. It allows the business to have total control over the supply chain and delivery to customers. Getting the concept right—that is, delivering to customers what they wish to purchase—requires constant fine-tuning. While franchising is a proven business strategy, it can also lead to a lot of operational problems.
Fiesta Restaurant Group beat Wall Street consensus with its fourth quarter of 2014. The company’s sales grew 15% to $156 million, while earnings improved to $9.4 million, or $0.34 per diluted share, up from a loss of $5.6 million, or ($0.22) per diluted share, comparatively.
The fourth quarter was an acceleration from the company’s full-year results. The company opened a net 24 new company-owned locations, with comparable restaurant sales growth of 7.7% at Pollo Tropical and 6.1% at Taco Cabana.
Momentum in a Slow-Growth Market?
This is actually a difficult market in which to be a buyer. The stock market has already gone up, valuations are lofty, and it’s a slow-growth environment.
There is the opportunity for momentum trading, however, with too few growth companies and a lot of investable dollars swashing around.
The right restaurant company can absolutely be a top wealth creator for more risk-oriented equity investors. As with most things, timing is everything and that even applies to what stage a particular company is in in its development.
There is plenty of future growth potential with a company like Fiesta Restaurant Group. The company continues to expand in Florida, and its near-term emerging markets include Texas and the cities of Nashville and Atlanta.
The target for Fiesta for 2015 is 20% company-owned restaurant growth. Longer-term national expansion is well within the cards.