The fast-casual concept has proven itself with a few big winners, particularly Five Guys, Chipotle, and Panera. This article is for those of us who did not jump on the fast-casual investing train early (me included). We missed out on the initial gains; where should we put our money? This is the second in a two-article series (the first can be seen here). Today, I will be looking at the Mexican, Central American, and South American inspired end of fast-casual: Chipotle Mexican Grill, Inc. (NYSE:CMG), the Qdoba concept operated by Jack in the Box Inc. (NASDAQ:JACK), and the Taco Cabana and Pollo Tropical concepts run by Fiesta Restaurant Group Inc (NASDAQ:FRGI).
Fiesta Restaurant Group
Fiesta Restaurant Group Inc (NASDAQ:FRGI) has had a tremendous run since Carrols Restaurant Group, Inc. (NASDAQ:TAST) spun it off in Q2 of 2012. The stock price has almost tripled since then, and it’s no wonder: Pollo Tropical reported the highest same-restaurant sales growth in the fast-casual space, with a 3.8 percent increase over Q1 of 2012 (continuing a 14-quarter streak of comp increases). Taco Cabana, which has a menu of more traditional Mexican favorites (quesadillas, flautas, burritos, salad bowls, and tacos), grew same-store sales by a comparatively modest (but still impressive) two percent, the concept’s eleventh consecutive quarter of comp increases.
Fiesta Restaurant Group Inc (NASDAQ:FRGI) will open between 14 and 17 new corporate restaurants this year and is aggressively franchising internationally. Management’s plan is to “grow EPS in excess of 20% annually” via aggressive expansion and continued same-store sales increases.
Fiesta Restaurant Group Inc (NASDAQ:FRGI) is trading at a very high P/E ratio of 53.8, although, given that it is a high-growth stock, the ratio may be appropriate depending on your investing style. Personally, it’s a little pricey for me, especially given the high debt/equity ratio of 13. That aggressive expansion comes at a price, and in this case that’s a balance sheet that leaves something to be desired. Also, the company itself has not been around that long (although Pollo Tropical has existed since 1988 and Taco Cabana since 1978), so I would like to see a little more proof that management can deliver on these promises before committing.
Chipotle Mexican Grill, Inc. (NYSE:CMG) is making some great moves, including testing a catering service in Colorado (which will expand to the remainder of the company by September 1) and the rollout in California of a new vegetarian menu called Sofritas. Chipotle isn’t leaving the aggressive expansion to Fiesta Restaurant Group Inc (NASDAQ:FRGI); management opened 48 new restaurants in Q1 of 2013 alone and intends to open between 165 and 180 new restaurants in 2013.
Chipotle Mexican Grill, Inc. (NYSE:CMG)’s sales grew by one percent on a same-restaurant basis in Q1 of 2013 compared to Q1 of 2012. Driven by higher operating margins, diluted earnings per share grew by over 24 percent in Q1. At $9.23, EPS for the trailing twelve months is almost double the 2010 EPS of $5.64. Chipotle Mexican Grill, Inc. (NYSE:CMG) has $700 million in cash and no debt – this company has the resources it needs to continue its aggressive expansion. At 39.8, the P/E ratio is high, but not nearly as high as Fiesta Restaurant Group Inc (NASDAQ:FRGI)’s. Given the strong balance sheet, still-aggressive expansion, and reasonable pricing, Chipotle Mexican Grill, Inc. (NYSE:CMG) is a definite buy.
Jack in the Box
Jack in the Box Inc. (NASDAQ:JACK) is the only restaurant of these three that isn’t wholly fast-casual; it operates both a burger concept (Jack in the Box) and the aforementioned Qdoba fast-casual concept. Jack in the Box Inc. (NASDAQ:JACK) operates on a fiscal year that ends in September, so Q2 of FY 2013 is the closest approximation for comparison to the Q1 numbers reported above. Qdoba reported a comp decrease of two percent in Q2. Qdoba already has a catering business, which represented 6.5 percent of sales for Q2 (and increased 11.5 percent compared to Q2 of 2012). Qdoba opened up 32 new restaurants (12 of them company-owned) during Q1 and Q2 – more new restaurants than Fiesta Restaurant Group, fewer than Chipotle Mexican Grill, Inc. (NYSE:CMG).