Yum! Brands, Inc. (YUM) Still Has a Lot of Potential

Yum! Brands, Inc. (NYSE:YUM) is one of the largest restaurant chains in the country. If you happen to like fast food giants like Pizza Hut, KFC and Taco Bell, they all come from the same parent corporate giant, Yum! Brands. The company has a global reach and has an extensive network of franchisees.

The company’s stock has historically been investor friendly and has provided an astonishing 80% return since 2008. There has been a slight dip in performance in the recent past due to various reasons, but I don’t feel skeptical about investing in this stock. The company will continue to provide decent returns and has long-term potential. In this article I will explain why.

Stock performance history

During the last year, Yum! Brands, Inc. (NYSE:YUM) traded at around $75 and clocked revenue of $13 billion. The 50-day moving average of the stock is currently $71. Revenues in the past two quarters have also been decent for the company. With a price-to-earnings (P/E) ratio of 19.43, it has high growth prospects. In 2012, Yum! Brands, Inc. (NYSE:YUM) reported growth in sales and profit figures in all of its divisions, including India and China. This shows that the company has proved to be an exceptional performer historically.

Issues in China, but the company will bounce back

Growing cases of avian flu in China has made Yum! Brands a little unpopular in the short term. Around 50% of Yum!’s business comes from China. This has naturally been a point of concern for investors. But, let us consider this fact. 70% of Yum!’s operating profit comes from its international business division. The company’s huge international presence is its primary growth catalyst and that is what has been making the company’s growth valuations sustainable. In 2011, Yum! Brands, Inc. (NYSE:YUM) also faced a dip in sales and has bounced back quite strongly. There are still plenty of markets to explore. Even existing markets are not saturated yet. With such a strong brand equity, Yum! will definitely curve its way out and confirm its dominance once again.

Competitive market

McDonald’s Corporation (NYSE:MCD) is a tough competitor for Yum! Brands, Inc. (NYSE:YUM) as it is evenly spread globally while Yum! relies too heavily on the Chinese market. Yum! should keep a close eye on McDonald’s Corporation (NYSE:MCD) as it is planning to open more than 1,500 restaurants around the world and has further expansion plans in the pipeline. McDonald’s adjusts itself pretty well with the local tastes, both in terms of menu offerings and price. Notwithstanding the economic downturn, the company’s revenue rose which suggests that it is economy-resistant. Both Yum! Brands, Inc. (NYSE:YUM) and McDonald’s were affected due to the demand slump in China, but McDonald’s Corporation (NYSE:MCD) came out of it faster. The company’s stock has good fundamentals and with several expansion plans down the line, McDonald’s has strong growth prospects too.