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Why Shares of Sonic Corporation Jumped

By Jeremy Bowman - Mar 25, 2014 at 6:03PM

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Is this meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Sonic Corporation ( SONC ) were looking tasty today, climbing as much as 12% and finishing up 11% on a strong second-quarter earnings report.

So what: The fast-food chain turned in an earnings of $0.07 per share on estimates of $0.06, while sales fell 1.3% to $109.7 million, short of expectations at $110.9 million. Same-store sales, a key industry metric, improved 1.4% as the company closed stores over the past year, affecting overall revenue. Other key indicators also moved up including restaurant-level operating margins, which increased 80 basis points. 

Now what: Investors were also pleased with Sonic's guidance as the company said it expects EPS to grow 14%-15% with same-store sales in the low-single digits in the fiscal year. The EPS projection was slightly better than analyst estimates, and the market seemed pleased that the company was able to grow profits during a quarter where many retailers struggled. Shares of Sonic have doubled in the past year, but with modest growth expectations, the stock is starting to look pricey at a P/E of 30. Now may be a good time for investors to take some profits off the table.

  
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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