Can Sonic Still Boom?

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Ahh, Sonic (Nasdaq: SONC), I remember you well.

I'm not sure who said it, but I remember somebody remarking a while back that Sonic used to focus on opening stores in little towns with five or fewer traffic lights. Growing up in such a town in the Midwest, I do remember that Sonic was the only fast-food option for a long time -- until McDonald's (NYSE: MCD) opened up a site by the interstate.

Sonic has long since let the city slickers in on what small-town folk knew for a while: This concept delivers pretty good food at a pretty good price, and does so with its own distinct flair. Not sure whether you're dining at an Applebee's (Nasdaq: APPB) or a Ruby Tuesday (NYSE: RI)? That's not a problem with Sonic.

Anyway, results for the company's first fiscal quarter were solid if not scintillating. Sales were up about 12%, net income rose about 9%, and earnings per share climbed roughly 13%. On the sales front, same-store sales grew 4.7%, which is a pretty impressive performance given year-ago growth of 8.1%. Interestingly, same-store sales in regions that the company considers "core markets" were up 5%, while developing-market sales were up 3.5%. I'm not sure what to make of that, but I'm intrigued that Sonic's doing relatively better in areas where it's already well-known.

While the company already has more than 3,000 sites open, it's still expecting to increase that total by another 190 this year (mostly with franchisees). Despite all this expansion, the company still manages to post respectable cash flow growth and solid returns on capital -- one of the benefits of a franchise model.

If you're willing to give Sonic some leeway on its capital expenditures, the stock doesn't look too expensive on a cash flow basis. I'm not saying it's exactly a slam-dunk bargain, but when a company's margins, ROIC, and growth are all well above industry averages, paying up for quality is a little easier to stomach.

Further Foolish fast food for thought:

• The Two Faces of CKE
• Jacked Up About Jack in the Box?
• A Super Sonic Stock

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).