With the economy in the toilet, a lot of people are reluctant to go and spend big on restaurant cuisine.By itself that would be a good reason not to invest in restaurant companies. But restaurant stocks have been absolutely smoked of late, so you have to wonder how much of the bad news is already priced in. Take a look:
- DineEquity (NYSE: DIN), parent company of IHOP and Applbee's: closed on Friday at $11.13, 83% off its 52-week high.
- The Cheesecake Factory (NASDAQ: CAKE): closed Friday at $10.96, 56% off its 52-week high.
- CKE Restaurants (NYSE: CKR), parent company of Carl Jr.'s and Hardee's: closed Friday at $8.88, 47% off its 52-week high.
- Starbucks (NASDAQ: SBUX): closed Friday at $11.08, 59% off its 52-week high.
I think bargain hunters who buy and hold restaurant stocks trading at low price/earnings ratios with very little debt and strong brands will do quite well here.
One stock to avoid: DineEquity, which trashed its balance sheet with the Applebee's acquisition and may have to head back to the market to raise cash at the expense of current shareholders. The Wall Street Journal reports (subscription required) on unprecedented promotions and store closings for some leading chains.
With closings and consolidation, well-managed companies with good balance sheets should come out of this mess OK, and investors who get in at depressed prices should prosper.
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Reader Comments (Page 1 of 1)
10-14-2008 @ 9:50PM
jimbissonnette said...
I hardly think of Ihop, or Applebees as restaurants. Perhaps it would be better to look at the Kimpton group for a better read on what a real restaurant is doing.Or maybe call your cousin, Jamie.
10-24-2008 @ 10:13AM
bruce said...
interesting and funny article from greenfaucet about sbux.
http://www.greenfaucet.com/hanlons-pub/peter-lynch-would-still-be-shorting-starbucks/05388