With shares down 20% this year, and its dividend yield approaching 5%, Darden Restaurants, (NYSE:DRI) is showing up on more value investors' radars. But there are some good reasons to avoid the stock, despite what looks like a cheap valuation.
In the video below, Fool contributor Demitrios Kalogeropoulos goes through three of the biggest reasons to steer clear. First, customer traffic is falling at flagship chains Red Lobster and Olive Garden, making it much harder to engineer a turnaround. Next, pricing is still a problem for those brands as diners focus on value and continue to flock toward no-frills, fast-casual alternatives like Chipotle (NYSE:CMG) and Panera (NASDAQ:PNRA.DL). And finally, Darden's shrinking profitability means that today's valuation of 14 times earnings isn't as cheap as it seems.
Fool contributor Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill, Darden Restaurants, and Panera Bread. 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.