El Pollo Loco currently trades at $10.28 per share and has shown little upside over the past six months, posting a small loss of 1.3%. The stock also fell short of the S&P 500’s 15.5% gain during that period.
Is there a buying opportunity in El Pollo Loco, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think El Pollo Loco Will Underperform?
We don't have much confidence in El Pollo Loco. Here are three reasons you should be careful with LOCO and a stock we'd rather own.
1. Same-Store Sales Falling Behind Peers
Same-store sales show the change in sales at restaurants open for at least a year. This is a key performance indicator because it measures organic growth.
El Pollo Loco’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 1.7% per year.
2. Fewer Distribution Channels Limit its Ceiling
With $479.7 million in revenue over the past 12 months, El Pollo Loco is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.
3. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect El Pollo Loco’s revenue to rise by 4.7%. Although this projection suggests its newer menu offerings will fuel better top-line performance, it is still below average for the sector.
Final Judgment
We see the value of companies helping consumers, but in the case of El Pollo Loco, we’re out. With its shares underperforming the market lately, the stock trades at 12.1× forward P/E (or $10.28 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment. Let us point you toward the Amazon and PayPal of Latin America.
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