Is This the Best Fast Food Buy?

Like discount retailers, fast food companies generally do well in recessions. Their products are cheap, they're convenient, and they provide an outlet for people worn down by the daily grind of trying to make ends meet.

At the beginning of this recession, for example, sales of fast food rose significantly. But as poor economic conditions persisted and as unemployment rose, some fast-food companies posted same-store declines for the first time in years.

But there's some evidence that the numbers are beginning to turn around -- which means it may be time to take a look at these portfolio workhorses.

Getting into the numbers
Who are the major fast food companies, and how do they stack up to one another?

Company

Market Cap (in billions)

Dividend Yield

Revenue, LTM
(in billions)

Free Cash Flow, LTM (in millions)

Q1 Comparable Store Sales

CAPS Rating
(out of 5)

McDonald's (NYSE: MCD  )

$73.6

3.2%

$23.3

$4,103

4.2%

****

Burger King (NYSE: BKC  )

$2.5

1.3%

$2.5

$129

(3.7%)

**

Wendy's/Arby's Group (NYSE: WEN  )

$1.7

1.5%

$3.6

$160

0.8% / (11.5%)*

**

Chipotle (NYSE: CMG  )

$4.5

n/a

$1.6

$148

4.3%

***

Yum! Brands (NYSE: YUM  )

$19.1

2.1%

$10.9

$682

(1%)

****

Data from Capital IQ, a division of Standard & Poor's, and the Motley Fool CAPS database.
* Data for the Wendy's / Arby's brands, respectively.

It's important to keep track of revenue, but free cash flow gives us a better sense of what the company is doing with that revenue -- and whether it'll have the funds to invest in the business later. Same-store sales figures help us understand sales trends after expansion and contraction has been backed out of the equation -- important for an industry that seems to be represented on every street corner.

McDonald's is obviously the 10-ton elephant of the group, and its strong dividend and performance explain why our CAPS players like it. Yum! Brands is also a favorite, and it's expanding in China and seeing strong performance there. Chipotle, on the other hand, is an industry-watcher favorite for its high growth, strong balance sheet, and its organic-food play.

Which fast food company do you like and why? Let us know in the comments.

Fool editor Julie Clarenbach doesn't own any of the companies mentioned here. Chipotle is a Motley Fool Rule Breakers selection. Chipotle is a Motley Fool Hidden Gems selection. Motley Fool Options has recommended a bull call spread position on Yum! Brands. The Fool owns shares of Chipotle. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 09, 2010, at 4:11 PM, DrRonPaul4Prez wrote:

    I like Wendy's because of the growth potential. They are a domestic company trying to get tapped into foreign markets, and they're the only one on the list currently selling below book value. They may carry a bit more risk than the big names MCD and YUM, but as best as I can analyze things, I see a future for this company.

  • Report this Comment On June 23, 2010, at 9:49 PM, ayaghsizian wrote:

    I like YUM due to the expansion in India and China. 10% of YUM's stores provide 34% of income.

  • Report this Comment On June 29, 2010, at 9:11 AM, christywestwood wrote:

    Get free recommendations... Stock pick record with 93wins 4 loss for 2009- click here

    http://flavr.be/smallcappenny

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1204394, ~/Articles/ArticleHandler.aspx, 10/26/2014 12:27:45 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement