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Habit's Q4 Confirms It Has Issues

Summary

  • Habit reported earnings on Wednesday and they weren't great.
  • Traffic was 3% lower and margins continue to deteriorate.
  • Guidance was very weak and the stock is still way too expensive.

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Habit Restaurants (NASDAQ:HABT) has been one of my highest conviction shorts for some time now. Actually, since the company came public a few years ago, it has been a pretty easy target to short. The stock is less than a quarter of its peak value today and after another ugly quarter, I couldn’t be more assured of my conviction that Habit is a short.

Breaking the downtrend is going to be tough

The stock is bouncing around as I write this but even if we get a rally in the coming weeks, there’s a lot to contend with overhead for the bulls. The stock will first have to take out the $10.35 relative high set back in December, followed by the gap lower from early November at $12. Those are likely to be sizable resistance points and they are also a very long way up from here. Rallying certainly isn’t impossible but I think it is more than fair to say that Habit bulls have their work cut out for them. Conversely, with a strong downtrend still in place, new lows look like the easy path.

Revenue was much higher but that's it

Apart from the chart, the fundamentals of Q4 don’t really look that great. Total revenue shot higher again, this time by 15%, as Habit continues to open a bunch of new units. At ~200 company-owned units, Habit is still pretty early on in its development of its footprint. This is especially true in areas outside the western US, where it is heavily concentrated today, leaving lots of room for expansion. The problem is that while it is opening lots of units, the ones it has aren’t exactly superstars.

Comps were down 1% in Q4 on a 2% gain in pricing but a 3% loss of transactions. The second bit – transaction

This article was written by

Josh Arnold profile picture
22.83K Followers

I've been covering financial markets for ten years, using a combination of technical and fundamental analysis to identify potential winners (and losers) early, particularly when it comes to growth stocks.

Analyst’s Disclosure: I am/we are short HABT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (8)

c
Hmm, not sure it’s “way too expensive”...agree that HABT will continue to experience choppiness until there is more clarity with expansion. As I have said, this is one of those “roll the dice” opportunities. Much money to be made if you can guess correctly up or down from here.
E
Clearly trying to do damage control after post-results pop in stock. This analysis is looking through the rear view mirror. The negatives have been priced in. And same store comps have actually done far better than most peers in the industry. Oh and at 0.7x sales, don't forget about the potential for being acquired.
Josh Arnold profile picture
Good luck with that.
Michael Rogus profile picture
Wonder what they think now... :)
Josh Arnold profile picture
LOL yep only crickets now....
John Gordon profile picture
As noted many times, writer Arnold is no restaurant guy (or girl), he doesn't at all get how restaurants develop and grow. Seeing beyond 3 feet from one's face is necessary. If Arnold is a day trader, he can get out and move on to the next industry he will claim to have expertise.

John A. Gordon
http://bit.ly/2xRZUzL.
BorrowedTime profile picture
💯 agree with you John. His article isn’t worth a response.
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