What happened
Shares of Chuy's Holdings (CHUY 1.17%) climbed 16.9% higher in February, according to data provided by S&P Global Market Intelligence. The stock has also climbed around 60% year to date. This impressive rally appears to be driven by investors looking for out-of-favor stocks that could benefit from a third round of economic stimulus.
So what
For perspective, Chuy's stock just surpassed all-time highs reached way back in 2013. The stock has been a long-term underperformer as it's struggled to grow sales and create anything more than meager profits. Of course, things got much worse during the pandemic. As a casual-dining restaurant chain, the company struggled as it shifted to a more to-go operating model. However, since it has many locations in Texas (a state with looser dine-in restrictions), things weren't as bad as they could have been. And Chuy's even turned a small profit in the third quarter of 2020.
Image source: Getty Images.
Chuy's revenue in Q3 fell "only" 25% from the third quarter of 2019, with a comparable sales decline of almost 20%. However, comp sales improved in September and October, down only 13.8% and 14.2% respectively. Now, with coronavirus vaccines being distributed, some Wall Street analysts see Chuy's as a reopening play and a potential beneficiary of another round of stimulus money.
Now what
Chuy's reports fourth-quarter financial results on March 4. Results will likely still be stressed, although management has refrained from issuing formal guidance. However, food costs and labor expenses are creeping higher, which could ding profitability. Considering the stock is now trading near all-time highs, investors are banking on a strong 2021. If management fails to inspire confidence when giving its outlook, this consumer-goods stock could come under pressure in the short term.
