Entering text into the input field will update the search result below

Habit Restaurants: Bottoming Out


  • Habit Restaurants reported mixed Q4 results, but the stock rallied.
  • The company has seen a string of weak comps and weaker margins over the last couple of years.
  • New initiatives plus an easier hurdle should place the company in a position to improve key metrics this year.
  • The stock is incredibly cheap on traditional financial metrics.

Restaurant stocks provide an interesting opportunity after the sector was beaten down in 2017. As the strong comp sales of the previous years led to increased competition, the weak numbers this year will reduce competition in the next few years leaving some strong operators like Habit Restaurants (NASDAQ:HABT) generating much improved results down the road and hence higher stock prices.

Source: Habit presentation

Breaking The Trend

The valuation of restaurant chains are based principally on the ability to grow comp sales and the restaurant contribution margin. Naturally, the balance sheet matters and other factors play a role, but the direction of the stock is generally based on those two key factors.

The massive comp sales figures from 2014 through 2015 set Habit up for this current negative comp hit. Getting rated as the top burger concept by Consumer Reviews came back to bite the company as comparisons became tough.

Source: Habit Restaurants ICR presentation

The Q4 comps were no different from the recent trend with a 1% decline in comp sales. One though needs to keep in mind that unit volumes were only $1.5 million back in 2011 so the burger concept struggling after reaching $1.9 million in 2016 shouldn't be a surprise or a big worry. After this period of weakness that started in 2016, Habit now has an easier hurdle in 2018 and beyond.

The addition of drive-thrus and delivery could provide a boost to the concept on top of any improvement in the sector. The company expects to add 15 drive-thru locations in 2018 after adding four during Q4. Habit Restaurants will go from only 18 entering Q4 to a target of doubling the store count with drive-thrus to 37 by the end of this year.

Habit has an advantage over other high-rated burger concepts that don't offer the drive-thru

ChartHABT data by YCharts

This article was written by

Stone Fox Capital profile picture
Out Fox the market with misunderstood, high reward opportunities
Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.

Stone Fox Capital launched the Out Fox The Street MarketPlace service in August 2020.

Invest with Stone Fox Capital's model Net Payout Yields portfolio on Interactive Advisors as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here:

Net Payout Yields model

Follow Mark on twitter: @stonefoxcapital

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in HABT over the next 72 hours. 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.

The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock, you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

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.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.