Originally published on August 10, 2014
Little do most people know, El Pollo Loco (NASDAQ:LOCO) had previously tried to IPO in October of 2006. They cited market conditions as a reason for pulling out of the offering. Just recently El Pollo Loco IPOed. Since 1980, El Pollo Loco has grown to be one of the largest differentiated restaurants in the U.S.. The first location opened in LA and they have since expanded to multiple states and grown to over 400 restaurants.
El Pollo Loco has grown its restaurant sales eleven consecutive quarters including 7.2%, 6.5%, and 3.7% in Q1' 14, Q4 '13, and Q3 '13, respectively. As a result revenues have increased from $273M to $294M from 2011 to 2012 and $294M to $315M from 2012 to 2013.
If you look closely at their financials they have not been able to churn a profit until recently. This is mainly due to the 'Loss on early extinguishment of debt' amounting to costs of $21.5M and $20.1M in 2013 and 2011 respectively. When El Pollo Loco refinanced their debt, it was replaced with senior secured credit facilities that carry longer maturities, but had lower interest rates. As a result of the refinancing, call premiums and write-off of deferred financing costs and accelerated accretion charges were incurred. Having taken this into account, El Pollo Loco would've had a net profit of approximately $5M and -$12M in FY 2013 and FY 2011 respectively.
From a technical perspective, from El Pollo Loco's initial public offering at $15 it is without a doubt that it has doubled since IPO. Now the general public, myself included, evidently did not have the change to buy it at $15. But it was at 18.48 on the first day. Honestly, that gap up on Monday after the first day of trading on Friday should have been a green light. If you had traded that gap up you would be up a significant amount.
Technically speaking, I always like to wait for a pullback to the 61.8% fib extension. Especially if it's the first pullback. But, it looks like the stock is strong enough to only need to bounce at the 38.2% fib. For me personally, the first entry point was the gap up on the second day of trading. If I were to pick an entry point now, it would be after it clears $41.7. That way there is no resistance. Everyone holding at that point will have been in the green. There would be no sellers waiting to get out at break even.
Disclaimer: This article is written for informational purposes only and isn't intended as investment advice.
Disclosure: I do not have a position in LOCO.