Can the Momentum Continue at Popeyes Louisiana Kitchen?

Shares of Popeyes Louisiana Kitchen have been as hot as its fried chicken, recently jumping after better-than-expected results in its latest fiscal quarter. Is it still a good bet?

Jul 11, 2014 at 10:00AM

Plki

Source: Popeyes Louisiana Kitchen

Shareholders in quick-serve restaurant chain Popeyes Louisiana Kitchen (NASDAQ:PLKI) have been all smiles lately, with the company's stock price up more than 500% over the past five years. Popeyes Louisiana Kitchen has benefited from growth in customer traffic volumes and comparable-store sales, which has allowed it to outpace struggling competitors, like Yum Brands' (NYSE:YUM) KFC unit.

Case in point was the company's latest fiscal quarter, where it reported a double-digit increase in revenue and better-than-expected profitability, data points that led to a subsequent pop in its stock price. However, after a strong multi-year run, is there more upside ahead for Popeyes Louisiana Kitchen?

What's the value?
Popeyes Louisiana Kitchen is one of the largest players in the chicken quick-serve category, operating a network of more than 2,200 stores around the world. Despite an anecdotally tough environment for the quick-serve restaurant segment, the company has been able to outperform the industry by utilizing an almost exclusively franchise-based operating model, a strategy that has allowed it to focus its resources on developing new menu offerings, like its popular Chicken Waffle Tenders. The net result for Popeyes Louisiana Kitchen has been rising volumes of customers and an upward trajectory for its top line over the past five years.

In its latest fiscal year, it was a continuation of the positive trend for Popeyes Louisiana Kitchen, highlighted by a 15.2% top-line gain that was a function of comparable-store sales growth and an expansion of its store base. More importantly, the company maintained an adherence to a low corporate overhead structure, which drove a slight improvement in operating profitability during the period. Consequently, Popeyes Louisiana Kitchen was able to generate an uptick in its operating cash flow, fueling its ability to invest further in its business development efforts.

So far, so good
Of course, the question for investors is whether Popeyes Louisiana Kitchen can maintain profit growth in the future after a strong run over the past few years.  Based on the company's latest quarterly result, it would seem that the answer is yes, evidenced by a double-digit operating profit increase during the period, which led management to proffer a bullish outlook for the remainder of the fiscal year.

That being said, Popeyes Louisiana Kitchen does have some big name competitors looking to steal some of its market share, such as Yum Brands' KFC unit. The former king of the chicken quick-serve category has been in the doldrums lately, hurt by some product missteps, not to mention bad publicity from recent, well-publicized quality control issues in its KFC China segment. 

While the China segment's results seem to have regained their footing in FY 2014, KFC's domestic operations remain a work in process, evidenced by a decline in comparable-store sales in its latest fiscal quarter. On the upside, though, the KFC unit remains highly profitable on a global basis, providing management with time to continue looking for the right formula for growth.

An even bigger threat for Popeyes is Chipotle Mexican Grill (NYSE:CMG), the growing chain of fast-casual restaurants that has attracted a loyal customer base that seems to get bigger every day, thanks in part to the company's focus on healthier food options, including antibiotic-free chicken. In its latest fiscal year, Chipotle came through with another strong showing, highlighted by a double-digit increase in revenue and adjusted operating income. 

More importantly, the company is a cash flow juggernaut, which is allowing it to expand its store base at a double-digit clip, no doubt putting even more pressure on its competitors, like Popeyes Louisiana Kitchen.

The bottom line
Popeyes Louisiana Kitchen has been a winner for investors over the past few years, thanks to innovative menu introductions and a laser-focus on efficient operations, two factors that have combined to create favorable profit growth for the company. While Popeyes Louisiana Kitchen's success has likely put a bulls-eye on its back, there seems to be room for multiple growth stories in the chicken quick-serve category. The company isn't exactly cheap, at a P/E multiple of roughly 29, but investors should consider a position in this smart operator on any market weakness.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

 

Robert Hanley has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers