Taco Cabana is a growth story. The fast-casual restaurant chain (mostly in Texas) is part of Fiesta Restaurant Group, Inc. (NASDAQ:FRGI), which is developing Taco Cabana and Pollo Tropical concepts at a double-digit rate.
In this market, one of the top growth sectors is still among casual restaurant chains.
If the mighty taco is slowly taking over the world, chains like Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) and even Darden Restaurants, Inc. (NYSE:DRI) have been stock market darlings of late.
Taco Cabana isn’t the only growth story out there. But it’s still a good one.
The two best things that can happen to a fast-casual restaurant chain with a proven concept are lower food and gasoline prices.
Fiesta improved its 2015 second-quarter sales by 11.5% comparatively to $172 million. Bottom line earnings grew 21% in the second quarter to $11.2 million with Taco Cabana growing its comparable restaurant sales in 19 of 20 past quarters.
Taco Cabana, Six Consecutive Quarters of Growth
I like restaurant stocks. They can be great moneymakers and a favorite of institutional growth investors.
Fiesta is doing well with both its restaurant concepts. Taco Cabana saw its second-quarter restaurant sales grow 4.4% to $82.0 million with a 5.6% increase in comparable sales, net of closures.
The restaurant’s average check improved 4.6% in the most recent quarter and the company’s overall costs of sales (mostly food cost) is growing at a rate slower than sales.
One of the reasons why growth stocks are so expensively priced in this market is because there are so few of them to go around. Institutional investors will always be nosing around the restaurant sector because it’s a proven winner for more risk-oriented players.
Fiesta’s overall sales growth might be slowing a bit from its previous rate, but it’s still a double-digit producer and should continue to be for some years.
I would say this stock has become much more attractively priced than it was previously. It’s down from a record high set earlier this year in February.
But the company still boasts a lot of potential, particularly with new franchise development, which is slowly being brought to new markets (mostly international currently).
Within the restaurant industry, “off-premise business,” otherwise known as take-out and catering, is a growth area. Fiesta wants to double its to-go and catering business over the next 10 years. Online ordering will become a big part of this.
The stock itself could use a little more liquidity. Average trading volume is somewhere around 250,000 shares a day. A stock split could be helpful.
In any case, there’s just not a lot of genuine new business growth out there and so the marketplace is likely to keep stocks like Fiesta richly priced.
What the company does have are two proven concepts. They are growing, profitable and there’s leverage available in future development.
Not too many businesses offer this these days.