Yum! Brands has been treading water for the past six months, recording a small loss of 0.6% while holding steady at $148.81. The stock also fell short of the S&P 500’s 11.9% gain during that period.
Given the weaker price action, is now a good time to buy YUM? Or should investors expect a bumpy road ahead? Find out in our full research report, it’s free for active Edge members.
Why Does Yum! Brands Spark Debate?
Spun off as an independent company from PepsiCo, Yum! Brands (NYSE: YUM) is a multinational corporation that owns KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill.
Two Things to Like:
1. Restaurant Growth Signals an Offensive Strategy
The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.
Yum! Brands sported 62,016 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 4.5% annual growth, among the fastest in the restaurant sector. Additionally, one dynamic making expansion more seamless is the company’s franchise model, where franchisees are primarily responsible for opening new restaurants while Yum! Brands provides support.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Yum! Brands has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the restaurant sector, averaging 19.2% over the last two years.
One Reason to be Careful:
Flat Same-Store Sales Indicate Weak Demand
Same-store sales is a key performance indicator used to measure organic growth at restaurants open for at least a year.
Yum! Brands’s demand within its existing dining locations has barely increased over the last two years as its same-store sales were flat.
Final Judgment
Yum! Brands has huge potential even though it has some open questions. With its shares trailing the market in recent months, the stock trades at 23.1× forward P/E (or $148.81 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
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