Interpreting Public Stock Valuations

QSR

  • QSR names continue to benefit from an asset-light model which insulate these companies from store-level margin compression. This segment also benefits from healthy post-lockdown performance as strong drive-thru and digital access solutions translate into solid valuation multiples with many stocks trading close to their 52-week highs.

FSR

  • The sit-down chains were hurt the most by lockdown measures as evidenced by LTM 3Q20 EBITDA margins that are still in the process of recovering from peak drawdowns. In any case, investors have awarded these solid brands with a substantial EV/EBITDA multiple premium (compared to QSR) as the market expects a strong rebound in dining habits with a return to normal propelling sit-down profitability, further boosted by newfound off-premise sales and market share gains at the unfortunate expense of independent restaurants.

Fast Casual

  • Fast casual stocks are trading at close to their 52-week highs as this segment distinguished itself from sit-down chains with an easier transition to off-premise (albeit typically without the benefit of drive-thru conveniences) while addressing a higher income demo that proved more resilient to the post-lockdown unemployment spike.

Grocery Store Chains

  • As a point of comparison, we included valuations for publicly traded grocery chains. The stark contrast in multiples relative to the restaurant chains mirrors the notable difference in margins, with restaurants demonstrating the profitability of their brands relative to the commodity function provided by grocery intermediaries. In any case, the post-lockdown cocooning theme seems to be lost on investors who are less willing to award the grocery chains with 52-week stock price highs.