How are they growing?
BWLD Long Term Debt data by YCharts
There’s a blip at the end of this chart showing Wild Wings’ $5 million in debt, but it’s nothing to worry about. The company has a $100 million line of credit that was set up in February. Buffalo Wild Wings used $5 million during the quarter, but then paid it off before the end of the quarter. Those who love this company’s rock solid balance sheet can rest easy: the company is still debt-free. So is Texas Roadhouse and BJ’s.
This is key to investors for several reasons. First, debt-free growth can only happen when a business has already proven its business model and the acceptance of its product. When you buy a debt-free company, chances are that business is strong and healthy. Second, debt-free growth companies are in a better position to reward shareholders than debt-laden companies. In times of struggle, a company with high debt will throw shareholders under the bus to survive using tactics like dividend cuts and share dilution. Debt-free companies — free from creditor concerns — can put shareholders first even during lean times.
Foolish Conclusion
Income investors love McDonald’s or Tim Hortons. Both are very healthy companies offering a long track record of dividend payouts. McDonald’s currently pays out about 3%, and Tim Hortons 2%. Yet, Texas Roadhouse can be an opportunity for growth and income. Its dividend has been paid out since 2011, has gone up each year, and currently sits at 2%. The company doesn’t have a long history of dividends that income investors are often looking for, but seems to be safe considering the company’s $95 million in cash.
BJ’s Restaurants is targeting a 425 location goal — over a 300% increase from the current number. One of the unique ways it is growing is by opening restaurants in “clusters” — restaurants located near one another. By doing this, BJ’s can cut infrastructure costs and create brand awareness — presently an admitted weakness of the company.
Buffalo Wild Wings is targeting 20% net income growth this year, and if the first quarter was any indication, it is on pace to do so. With 105 new locations this year — including new markets like Puerto Rico and the United Arab Emirates — this is poised to be the largest growth spurt in the history of the company. I’m very bullish on Texas Roadhouse and BJ’s Restaurants, but my top pick in the restaurant sector remains Buffalo Wild Wings.
The article Why You Need This Restaurant Stock in Your Portfolio originally appeared on Fool.com and is written by Jon Quast.
Jon 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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