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Editorial Advisory Board

  • Professor Andrea M. Armani, University of Southern California
  • Ruti Ben-Shlomi, Ph.D., LightSolver
  • James Butler, Ph.D., Hamamatsu
  • Natalie Fardian-Melamed, Ph.D., Columbia University
  • Justin Sigley, Ph.D., AmeriCOM
  • Professor Birgit Stiller, Max Planck Institute for the Science of Light, and Leibniz University of Hannover
  • Professor Stephen Sweeney, University of Glasgow
  • Mohan Wang, Ph.D., University of Oxford
  • Professor Xuchen Wang, Harbin Engineering University
  • Professor Stefan Witte, Delft University of Technology

3 Reasons to Sell LOCO and 1 Stock to Buy Instead

LOCO Cover Image

Over the past six months, El Pollo Loco’s stock price fell to $12.36. Shareholders have lost 8.8% of their capital, which is disappointing considering the S&P 500 has climbed by 8.9%. This may have investors wondering how to approach the situation.

Is there a buying opportunity in El Pollo Loco, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Even though the stock has become cheaper, we don't have much confidence in El Pollo Loco. Here are three reasons why you should be careful with LOCO and a stock we'd rather own.

Why Do We Think El Pollo Loco Will Underperform?

With a name that translates into ‘The Crazy Chicken’, El Pollo Loco (NASDAQ: LOCO) is a fast food chain known for its citrus-marinated, fire-grilled chicken recipe that hails from the coastal town of Sinaloa, Mexico.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, El Pollo Loco’s 1.3% annualized revenue growth over the last five years was weak. This fell short of our benchmarks. El Pollo Loco Quarterly Revenue

2. Fewer Distribution Channels Limit its Ceiling

With $471 million in revenue over the past 12 months, El Pollo Loco is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

3. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect El Pollo Loco’s revenue to rise by 2.2%, close to its 1.3% annualized growth for the past five years. This projection doesn't excite us and implies its newer menu offerings will not accelerate its top-line performance yet.

Final Judgment

El Pollo Loco falls short of our quality standards. After the recent drawdown, the stock trades at 30.1× forward EV-to-EBITDA (or $12.36 per share). This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there. We’d recommend looking at our favorite semiconductor picks and shovels play.

Stocks We Would Buy Instead of El Pollo Loco

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.

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