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Can Jack in the Box Keep Up Its Torrid Growth?

By Motley Fool Staff - May 25, 2016 at 8:00AM

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After all, it isn't easy when your company's stock has grown by over 250% in the past five years.

Jack in the Box's (JACK 3.16%) did much better than many believed it would in its second quarter. It notched a convincing beat on EPS estimates, which was largely due to revenue improvement at the company's Tex-Mex chain Qdoba. Although Qdoba is a relatively small part of its operations, its impressive growth has juiced Jack in the Box's results, and holds the potential to continue doing so.

In this clip from the Motley Fool Money radio show, Chris Hill, Ron Gross, Steve Broido, and Jason Moser talk about some of the reasons the company has done so well lately, and how the stock looks right now from a valuation standpoint.

A full transcript follows the video.

This podcast was recorded on May 13, 2016. 

Chris Hill: Second quarter profits for Jack in the Box came in higher than expected. Strong sales at their Qdoba chain, Ron. But they're also getting it done at the namesake restaurants, too.

Ron Gross: Chris, you don't know Jack. The stock is up 258% over the last five years, versus 54% for the S&P. Most people have no idea the performance that Jack in the Box has put up over those last several years, doing a really great job. Qdoba is the growth engine of this company right now, but it's a much smaller piece of the pie as of now. 2,200 Jack in the Boxes, only 600 Qdobas. But I think we'll start to see the acceleration of new Qdobas going forward, and that'll end up being a bigger piece of the pie, and spur the growth.

Hill: How much of their operations are franchise? Is that really the growth engine for them?

Gross: It's a mix. They're going to open up 50-60 Qdobas this year, probably, and it'll be half and half or somewhere around there of franchises versus company-owned. Maybe a bit more company-owned than franchises. But it is a big part of the business model.

Hill: Yeah, I have to give it up to that management team, because I don't think you get this kind of consistently strong results unless you're a very strong operator.

Gross: Correct. And they're actually good capital allocators, too, because they're buying back stock at good times. Stock really isn't even that expensive, 24 times earnings, 11 times EBITDA, 1.6% yield for those dividend folks out there. The company's doing a nice job.

Let's bring our man Steve Broido in from the other side of the glass. Steve, have you ever been to a Jack in the Box or Qdoba?

Steve Broido: I've been to Qdoba. I've probably been to a Jack in the Box, but I cannot remember when.

Hill: Do you feel like you'd go back to Qdoba, or was it not a good experience?

Broido: Eh, flip a coin, it was fine, not great.

Gross: Do we think they're benefiting from the weakness of Chipotle (CMG -0.04%) at this time, or is that too easy of an explanation?

Hill: Don't we think all restaurants are benefiting from the weakness in Chipotle? I mean, I wouldn't necessarily assume it was Qdoba.

Jason Moser: I think you also have the flip side of that, and think, "One of the ways Chipotle has been working on getting customers back is by giving away a lot of food." So, they're going through this process of totally free food, then the next level of buy-one get-one, until they can finally wean the customer back to a full-boat offering there. But when you have a restaurant that historically has done pretty well, like Chipotle, giving away a lot of free food, I think that's probably going to take a lot of traffic away from other restaurants. So, perhaps the opportunity to capitalize on Chipotle's misfortunes has passed us.

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Stocks Mentioned

Jack in the Box Inc. Stock Quote
Jack in the Box Inc.
$57.83 (3.16%) $1.77
Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
$1,306.80 (-0.04%) $0.46

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