El Pollo Loco: The 'Outsourcing' Of The Expansion Plan As An Indication Of Lackluster Growth Prospects
- Heavy reliance of the Mexican fire-grilled restaurant chain on franchisees is an indication of organizational weakness, strained financial resources, and reduced confidence in its growth prospects.
- Three-year historical comp sales growth, in part achieved with the tailwind of one-off effects, disguises the overall uninspiring performance of the company.
- The stock trades >150% above its IPO price (65x 2015E EPS), driven by excessive short-termism. The holding period of the average post-IPO investor is currently less than 2 days.
- The fading of the IPO hype and the expiration of the lock-up period could drive a meaningful correction (>30%) of the stock price.