Brinker International currently trades at $138.88 and has been a dream stock for shareholders. It’s returned 520% since May 2020, blowing past the S&P 500’s 91.9% gain. The company has also beaten the index over the past six months as its stock price is up 20.9% thanks to its solid quarterly results.
Is now still a good time to buy EAT? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Does Brinker International Spark Debate?
Founded by Norman Brinker in Dallas, Brinker International (NYSE: EAT) is a casual restaurant chain that operates the Chili’s, Maggiano’s Little Italy, and It’s Just Wings banners.
Two Things to Like:
1. Surging Same-Store Sales Show Increasing Demand
Same-store sales is a key performance indicator used to measure organic growth at restaurants open for at least a year.
Brinker International has been one of the most successful restaurant chains over the last two years thanks to skyrocketing demand within its existing dining locations. On average, the company has posted exceptional year-on-year same-store sales growth of 11.7%.
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Brinker International’s margin expanded by 4.2 percentage points over the last year. This is encouraging because it gives the company more optionality. Brinker International’s free cash flow margin for the trailing 12 months was 7.6%.
One Reason to be Careful:
Lack of New Restaurants, a Headwind for Revenue
A restaurant chain’s total number of dining locations influences how much it can sell and how quickly revenue can grow.
Brinker International operated 1,626 locations in the latest quarter, and over the last two years, has kept its restaurant count flat while other restaurant businesses have opted for growth.
When a chain doesn’t open many new restaurants, it usually means there’s stable demand for its meals and it’s focused on improving operational efficiency to increase profitability.
Final Judgment
Brinker International has huge potential even though it has some open questions, and with its shares outperforming the market lately, the stock trades at 15× forward P/E (or $138.88 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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