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Are Paycheck Protection Loans Good for Publicly Traded Companies?

The drawbacks of taking money meant for small businesses could outweigh the benefits

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Margaret Moran
Apr 22, 2020
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The Paycheck Protection Program, part of the CARES Act passed by the U.S. Congress in response to the Covid-19 pandemic and subsequent economic recession, is ostensibly meant for smaller mom-and-pop businesses, the kind whose entire staff is often living paycheck to paycheck.

According to the terms of the program, a business needs to have less than 500 employees in order to apply. However, there are a couple of exceptions to this. If a business with more than 500 employees meets the Small Business Administration (SBA) industry size standard (meaning it operates in a big enough industry to be small in comparison), it can apply for the loan. Additionally, businesses that operate in accommodations and food services and have multiple locations with less than 500 employees each can qualify.

In other words, certain publicly traded companies can, and have, applied for and received some of the largest PPP loans. Additionally, since these bigger business typically have more employees and liquidity already on hand, they are almost certain to meet the requirements needed for their loans to be forgiven.

“SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities,” reads the SBA information page for the PPP. Due to the high demand for loans, another stipulation was added: 75% of the loan must go towards payroll.

Data compiled by Morgan Stanley (MS) shows that the biggest publicly traded companies receiving the largest PPP loans are DMC Global Inc. (

BOOM, Financial), WAVE Life Sciences Ltd. (WVE, Financial) and Fiesta Restaurant Group Inc. (FRGI, Financial). Shake Shack Inc. (SHAK, Financial) also received a PPP loan, but the company returned it after public outcry that it was taking money meant for smaller businesses.

Why would a big company take out a PPP loan?

Considering that the program is meant for small businesses, why would a publicly traded corporation feel the need to utilize it?

For one, accommodations and food services businesses are being hit hard by lockdowns, as hotels and such are non-essential and food suppliers often face greater exposure to the virus.

Additionally, many of them are more likely than small businesses to meet the forgiveness requirement of 75% of the loan going towards payroll. That means 25% of the loan is basically free money. For companies in dire financial straits, this could be necessary to their survival.

It could also help with employee retention. With the $600 per week additional unemployment bonus that was also part of the CARES Act, employees making less than approximately $20 per hour (the exact amount depends on the state), so unemployment will now pay more than their original paycheck. This means that keeping these low-income employees on the payroll is less beneficial for the employees, but more beneficial for the company, as it would have to do less re-hiring after business picked back up.

However, this all boils down to either financial weakness or taking advantage of the system. While many of their peers are tapping low-interest credit facilities and utilizing cash on hand, these businesses are rushing to receive free money from the government, indicating that investors may want to be wary of potential weakness. While some of these businesses might be good investments, others may not be.

DMC Global

DMC Global, or Dynamic Materials Corporation, is an explosive metalworking and perforation company based in Boulder, Colorado. The perforation business is focused on the oil and gas industry, while the explosive metalworking business is a world leader in explosion welding and advanced clad materials.

On April 22, DMC Global had a market cap of $367.76 million. It was the largest publicly traded company (by market cap) to receive a PPP loan, taking out $6.7 million. With approximately 428 employees, it meets the “under 500 employees” requirement.

GuruFocus gives the company a financial strength rating of 8 out of 10. The cash-debt ratio of 1.43 indicates a strong cash position, even though it is slightly below what the company normally had on hand in recent years.


The Altman Z-Score is 5.18, meaning that the company is extremely unlikely to go bankrupt in the next two years. With interest coverage of 50.15 times and a current ratio of 2.02, DMC global has an overall strong financial position. However, the Beneish M-Score is -2.26, meaning that the company is an accounting manipulator, so investors may not be able to completely trust the numbers.

With a price-earnings ratio of 11 and an operating margin of 19.6%, if DMC Global is able to eventually resume the same level of activity as in 2019, it could be a profitable investment. The Peter Lynch chart below illustrates this.


The collapse in oil prices has served as a huge blow to the oil sector, meaning that DMC Global’s sales to this sector are likely to remain depressed, at least in the short term. However, its position as an industry leader in clad materials gives it a profitable niche.

WAVE Life Sciences

Singapore-based WAVE Life Sciences is biotechnology company with research focused on serious genetic diseases. It seeks to utilize the potential of nucleic acid therapeutics to create transformational therapies for genetic diseases, with a focus on Huntington’s disease, amyotrophic lateral sclerosis (ALS) and frontotemporal dementia.

On April 22, WAVE Life Sciences had a market cap of $272.52 million. The company received a PPP loan worth $7.2 million. With approximately 235 employees, the company meets the “under 500 employees” requirement.

GuruFocus gives the company a financial strength rating of 2 out of 10. As a development-stage biotech, it is still at the point where it far from becoming profitable, making any present investment in the stock a prediction that the company will be able to produce high-earning products in the future.


The share price has traded near all-time lows since the beginning of 2020. However, this stock would still represent an unfavorable risk-reward ratio for investors, even for a biotech company.


Fiesta Restaurant Group

Fiesta Restaurant Group owns, operates and franchises restaurants under the Taco Cabana and Pollo Tropical brand names.

On April 22, Fiesta Restaurant Group had a market cap of $172.44 million. The company received a PPP loan worth $10 million. With over 10,000 employees, the company does not fit the bill for “under 500 employees,” but it does operate in food services.

GuruFocus gives the company a financial strength rating of 3 out of 10. The cash-debt ratio of 0.04 is lower than 86% of competitors, and the Altman Z-Score of 0.95 suggests that the company could potentially go bankrupt within the next couple of years.


In addition to low financial strength, Fiesta Restaurant Group has an operating margin of 1.49% and earned a net loss in two of the past four years.


Shake Shack

Shake Shack is a New York-based restaurant chain that serves “roadside burger stand” style burgers and shakes.

With a market cap of $1.88 billion as of April 22, Shake Shack is the biggest company on this list, and also the only one that gave back its $10 million PPP loan after deciding that it just wasn’t worth it.

As billionaire entrepreneur Mark Cuban pointed out, “You’re going to kill your brand” by taking the money. According to Cuban, publicly traded companies are damaging their reputations by taking PPP loans, a theory that is supported by waves of social media criticism.

Shake Shack cited employee retention as its initial reason for taking out the loan originally. However, as noted above, many low-wage employees could be better off getting unemployment checks, and Shake Shack really is in a better financial position than many of its peers.

GuruFocus gives the company a financial strength rating of 5 out of 10. The cash-debt ratio of 0.22 is average for the industry, while the Altman Z-Score of 2.42 indicates that the company is likely safe from bankruptcy.

Despite recent market declines, during which Shake Shack’s shares lost approximately 16% year to date, the company still trades at a price-earnings ratio of 79.91. According to the Peter Lynch chart, this puts the stock in the overvalued range, though it is trading lower than its median historical valuation.


Additionally, after returning the PPP loan, Shake Shack announced that it would sell 3.4 million additional shares of its Class A common stock, raising approximately $136 million. The dilution of existing shares will likely more than neutralize any potential reputation boosts from returning the PPP loan, though the company could potentially repurchase some of these shares at a lower valuation if the price continues to fall.


The example of Shake Shack brings to light a problem with brand-based companies taking advantage of PPP loans and similar initiatives: the potential to suffer damage to their reputation.

Companies like DMC Global and WAVE Life Sciences, which are mostly out of the public eye, have less cause for such worries. For these kinds of businesses, the PPP loan money will only be an asset, not a drawback. However, Shake Shack, Fiesta and other restaurants, which are dependent on their brand names, reputations and customer loyalty, may find that it is better to pursue alternative avenues to raise cash. For those that are not on the edge of financial collapse, there are plenty of other options.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research or consult registered investment advisors before taking action in the stock market.

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