That might be the reason why Nathan’s Famous delivered the highest profitability with the highest return on invested capital among the three companies. While Buffalo Wild Wings and Dunkin Brands Group Inc (NASDAQ:DNKN) generated 14.9% and 2.5%, respectively, in that financial metric in the past 12 months, Nathan’s Famous’ ROIC was much higher, at 22.8%. Moreover, it does not employ any debt in its operations. Looking forward, with the franchise business model and a strong balance sheet, Nathan’s Famous could continue to deliver to a high level of profitability to its shareholders.
Dunkin Brands Group Inc (NASDAQ:DNKN) also adopts the 100% franchise business model. Consequently, the business is also valued quite expensive in the market. At $43.60 per share, Dunkin Brands Group Inc (NASDAQ:DNKN) is worth around $4.7 billion in market cap. It is valued at 18.8 times its trailing EBITDA.
Dunkin Brands Group Inc (NASDAQ:DNKN) estimates that it will continue to experience good growth for the full year 2013 at around 6% to 8% in revenue and 10% to 12% in adjusted operating income. The company expects to generate around $1.50 to $1.53 in EPS and around $125 million to $135 million in free cash flow. Income investors might like Dunkin Brands Group Inc (NASDAQ:DNKN) because of its decent dividend yield at 1.7% while both Nathan’s Famous and Buffalo Wild Wings have not paid any dividends to shareholders yet.
However, investors should not be thinking about getting income from Buffalo Wild Wings anytime soon since most of the cash will be employed to grow the business, driving shareholder value. The company plans to expand its business internationally through franchising and through emerging brands. With the historical significance of organic growth, I think with that cash policy, Buffalo Wild Wings could deliver high growth for shareholders in the future.
My Foolish take
Buffalo Wild Wings could be a good long-term restaurant pick for patient investors because of its strong balance sheet, significant historical growth, decent profitability and its low valuation. I also like Nathan’s Famous because of its high profitability and the franchise business model, which requires less capital expenditure than company-owned restaurants. I personally think that both Buffalo Wild Wings and Nathan’s Famous could deliver good returns for shareholders in the future.
The article A High Growth Restaurant Chain With Decent Profitability originally appeared on Fool.com and is written by Anh HOANG.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings. The Motley Fool owns shares of Buffalo Wild Wings. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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