When El Pollo Loco (LOCO, Financial) burst onto the scene, it generated massive initial investor interest. The stock burst out of the gates on its first day and spiked to its 52-week high of $41.70 in record time. That flurry of interest in El Pollo Loco proved unsustainable and The Crazy Chicken (El Pollo Loco) soon stabilized in the $35-$38 range between September 2014 and November 2014.
Thereafter, the stock went into freefall, dropping from a November high of over $37 p/s to a December 31 low of $19.97 p/s – a decline of over 45% in just a few months. But Q1 and now Q2 of 2015 are proving to be a period of consolidation for the stock with strong and steady earnings growth and a rising stock price. In fact, since late January 2015 the stock has straddled the $25 p/s line and is now trading at $27.10 p/s.
Factors driving renewed interest in El Pollo Loco
A recent rally in early April has helped the stock raise expectations regarding future growth potential. LOCO's stock price confirms the technical price corrections and the upside potential of the stock is all but guaranteed. During the second week of April 2015, investors were scrambling to cash in on LOCO stock, with daily trading volumes exceeding 350K.
A big part of the reason why the stock is performing well now is its March earnings report. According the company’s financial statements, EPS was $0.14, up from analysts’ expectations of $0.12 p/s. The Tex-Mex style restaurant chain surged on the back of higher earnings, with Q4 2014 revenues in the region of $90 million. That’s an 18% improvement. But what’s more impressive is the net income increase of 60.6% to $5.5 million.
As of April 15, 2015 the Market Cap of El Pollo Loco was $1.02 billion, with an average trading volume of 1.1 million shares. The company has a price/earnings ratio of 21.98 and earnings per share of 1.24. El Pollo Loco can now lay claim to 14 successive quarters of positive earnings. EPS for 2015 also looks positive, with analysts forecasting $0.71 p/s and given consumer sentiment, the market for El Pollo Loco is set to continue well into the future.
Various analysts (including Jefferies Group) have labeled LOCO a buy and put a price of $27 p/s on it. The general consensus among all financial analysts is that LOCO is a strong buy/ buy or hold, but definitely not a sell.
What works in El Pollo Loco’s favor?
The chief executive officer of El Pollo Loco, Steve Sather, believes that his company has an edge over its main competitors in Panera Bread (PNRA, Financial) and Shake Shack (SHAK, Financial). For starters, the sit-down or take-out experience is comparable in quality and variety, but the price of El Pollo Loco per person is more affordable. The average spent per person is $5.83 at LOCO while it is $7.47 at Panera Bread and $7.49 at Shake Shack. Beyond price is the choice that patrons have, and as a healthy alternative to fried food, El Pollo Loco will emerge strong after short sellers are overwhelmed by those taking long positions on the stock.
