Chuy's (CHUY) vs. Portillo's (PTLO): What's the Best Restaurant Buy?

Chuy's Holdings, Inc. (CHUY) owns and operates full-service restaurants under the name ‘Chuy's’ in the United States. Portillo's Inc. (PTLO) owns and operates fast casual and quick service restaurants in the United States and also offers its products through its website.

Like some other industries, the restaurant industry had turbulent times amid sky-high inflation. Despite such challenges, the sector navigated through seismic changes and is anticipated to thrive in the foreseeable future.

Even though inflation might be cooling off, it remains high, affecting consumers’ purchasing power. Despite this, restaurant sales are expected to witness a summer boom.

The soaring trend of away-from-home food consumption and the rising adoption of innovative techniques and technology in the industry has enhanced consumer experience and is driving the overall efficiency of the industry.

Furthermore, the global foodservice market is projected to grow to $5.19 trillion by 2029, exhibiting a CAGR of 10.8% between 2022 and 2029.

CHUY has gained 67% over the past year, while PTLO returned 13.7%. However, CHUY’s 5.9% gains over the past month are significantly higher than PTLO’s loss of 10.4%.

Also, over the past three months, CHUY remains a clear winner as it has gained 1% to close its last trading session at $37.06, whereas PTLO lost 8.5% to close its last trading session at $20.45.

But which stock is a better buy now? Let’s find out.

Latest Developments

CHUY opened its first new restaurant of 2023 in Fayetteville, Arkansas. The company expects 2023 adjusted net income per share between $1.71 and $1.76 compared to adjusted net income per diluted share of $1.37 in fiscal 2022.

During and subsequent to the quarter ended March 26, 2023, PTLO, in addition to the remaining four restaurants that were planned for 2022, opened six new restaurants opened in 2022 and 2023, which positively impacted revenues by approximately $10.6 million in the quarter ended March 26, 2023.

The company also plans to open nine more new restaurants in 2023.

Recent Financial Results

CHUY’s revenues increased 12% year-over-year to $112.50 million in the fiscal first quarter that ended March 26, 2023. Income from operations stood at $8.37 million, up 37.6% year-over-year. Net income and net income per common share stood at $8.22 million and $0.45, representing 49% and 55.2% improvements from the prior-year quarter, respectively.

PTLO’s revenues grew 16% year-over-year to $156.06 million in the fiscal first quarter that ended March 26, 2023. Operating income rose 24.6% from the same quarter last year to $8.49 million. However, its net loss stood at $1.27 million compared to net income of $550 thousand in the year-ago quarter, and its net loss per share stood at $0.01.

Past and Expected Financial Performance

Even though CHUY’s revenue has grown at a 1.2% CAGR over the past three years and PTLO’s revenue grew 7% CAGRs over the past three years, CHUY’s EBITDA and EBIT grew at 12% and 27.7% CAGRs over the past three years, while PTLO’s declined at 5.5% and 5.7% CAGRs for the same period, respectively.

CHUY’s EPS for fiscal 2023 and 2024 is expected to increase 27.3% and 7.3% year-over-year to $1.74 and $1.87. respectively. Its revenue for fiscal 2023 and 2024 is expected to increase 9.7% and 7.5% year-over-year to $463.10 million and $497.92 million, respectively.

Its revenue and EPS for the quarter ending June 2023 are expected to increase 6% and 20.5% year-over-year to $117.61 million and $0.53, respectively.

For fiscal 2023, PTLO’s EPS is expected to decline 42.8% year-over-year to $0.31. Its revenue for the same year is expected to come in at $683.41 million. Its EPS for the quarter ending June 2023 is expected to decline 4.7% year-over-year to $0.14. Its revenue for the same quarter is expected to come in at $169.22 million.

Profitability

CHUY has a net income margin of 5.43% compared to PTLO’s 1.67%, respectively. Furthermore, CHUY’s ROCE, ROTA, and ROTC of 9.41%, 4.91%, and 3.89% compare with PTLO’s 4.38%, 0.78%, and 3.12%, respectively.

Thus, CHUY is more profitable.

Valuation

In terms of forward EV/Sales, CHUY is trading at 1.80x, 30.2% lower than PTLO, which is currently trading at 2.58x. Also, CHUY’s forward EV/EBITDA ratio of 14.10 is 23.8% lower than PTLO’s 18.51.

POWR Ratings

CHUY has an overall rating of B, translating to Buy in our proprietary POWR Ratings system. On the other hand, PTLO has an overall rating of D, which equates to Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CHUY has a Quality grade of B, consistent with its trailing-12-month EBITDA and net income margins of 11.12% and 5.43% are 2% and 26.7% higher than the industry averages of 10.90% and 4.28%, respectively.

On the other hand, PTLO has a D grade for Quality, justified by its trailing-12-month EBITDA and net income margins of 10.46% and 1.67% are 4% and 61.1% lower than the industry averages.

CHUY and PTLO have a C grade for Stability, in sync with their 24-month betas of 0.97 and 1.55, respectively.

Of the 45 stocks in the A-rated Restaurants industry, CHUY is ranked #7, while PTLO is ranked #42.

Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Sentiment, and Value.  Get all ratings of CHUY here. To view PTLO’s ratings, click here.

The Winner

The restaurant industry could experience a boom once again due to the increased presence of foodservice units and rising spending on dining out. As the industry is expected to expand, CHUY and PTLO could benefit from industrial tailwinds.

However, given CHUY’s robust profitability scenario, lower valuation, and favorable bottom-line estimates, the stock could be a better buy over PTLO now.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Restaurants industry here.

What To Do Next?

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PTLO shares were trading at $20.81 per share on Friday afternoon, up $0.36 (+1.76%). Year-to-date, PTLO has gained 27.51%, versus a 12.30% rise in the benchmark S&P 500 index during the same period.

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.

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