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El Pollo Loco Stock Surges 63% in 6 Months: Is it Too Late to Buy?
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El Pollo Loco Holdings, Inc. (LOCO - Free Report) stock has shown remarkable performance in the past six months, outperforming the S&P 500 and the industry. In the same time frame, LOCO has surged 62.5% compared with the industry’s 2.3% increase and the S&P 500’s 9.3% rise. The company is focused on repositioning itself for growth under the leadership of CEO Liz Williams. Williams, who has been in her role for about six months, is undertaking efforts to modernize the brand and improve unit-level margins.
As of Friday, the stock closed at $13.60, below its 52-week high of $14.25 but above its 52-week low of $8.11. It also outperformed other industry players like Chipotle Mexican Grill, Inc. (CMG - Free Report) , up 1.2%, Restaurant Brands International Inc. (QSR - Free Report) , down 14.1%, and Brinker International, Inc. (EAT - Free Report) , up 49.5% in the past six months.
Stock Price Performance
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for LOCO. The stock is trading above its 50-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in LOCO's financial health and prospects.
50-Day Moving Averages
Image Source: Zacks Investment Research
Factors Favoring LOCO Stock Surge
The company is benefiting from an increase in system-wide comparable restaurant sales. In the fiscal second quarter, LOCO reported a 4.5% increase in system-wide comparable restaurant sales, driven by their iconic Fire-Grilled Chicken, focus on value offerings and consistent operations.
El Pollo Loco is taking a strategic approach to its cost-saving measures, ensuring that food quality and customer experience are enhanced throughout the process. The company made strategic hires, including a new chief development officer, to streamline operations and reduce unit build costs. These efforts are expected to improve franchise growth and financial performance in the coming years. A new prototype design is expected to reduce the unit build cost to $1.8 million, which will further fuel franchise growth in 2025.
By leveraging fresh leadership perspectives and the expertise of long-standing team members, LOCO aims to realize the benefits of these initiatives by fourth-quarter 2024. These savings are expected to help balance the investments being made. With the progress achieved so far and a clear plan for the year ahead, the company is optimistic about reaching 18% restaurant contribution margins by 2025, strengthening its confidence in sustainably achieving 18-20% margins in the future.
El Pollo Loco relaunched its fire-grilled burritos and introduced new creamy chipotle sauce and queso blanco at competitive price points, enhancing the value perception of its menu. This contributed to positive feedback and sales growth.
To drive growth, a new chief development officer and franchisee development incentives were introduced, to accelerate expansion in 2025. Management is committed to building a strong franchise pipeline and proving the brand’s geographic scalability.
Estimate Revision Favoring the LOCO Stock
Reflecting the positive sentiment around LOCO, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have raised their estimates for the current and next fiscal by 12.7% to 80 cents and 14.1% to 89 cents, respectively.
Image Source: Zacks Investment Research
LOCO Trading at a Discount
The company is currently valued at a discount compared with the industry on a forward 12-month P/E basis. LOCO’s forward 12-month price-to-earnings ratio stands at 15.7, significantly lower than the industry’s ratio of 24.57 and the S&P 500's ratio of 21.45.
P/E (F12M)
Image Source: Zacks Investment Research
Conclusion
Despite the stock's impressive gain in the past six months, investors can still consider buying the stock. Strategic leadership under Williams and successful cost-saving initiatives are expected to improve margins and boost franchise growth. With the company's forward-thinking approach, including new menu innovations and unit-build cost reductions, along with upward revisions in earnings estimates and a favorable P/E valuation compared with the industry, the Zacks Rank # 2 (Buy) company presents a compelling opportunity for long-term growth at a discounted price.
Image: Bigstock
El Pollo Loco Stock Surges 63% in 6 Months: Is it Too Late to Buy?
El Pollo Loco Holdings, Inc. (LOCO - Free Report) stock has shown remarkable performance in the past six months, outperforming the S&P 500 and the industry. In the same time frame, LOCO has surged 62.5% compared with the industry’s 2.3% increase and the S&P 500’s 9.3% rise. The company is focused on repositioning itself for growth under the leadership of CEO Liz Williams. Williams, who has been in her role for about six months, is undertaking efforts to modernize the brand and improve unit-level margins.
As of Friday, the stock closed at $13.60, below its 52-week high of $14.25 but above its 52-week low of $8.11. It also outperformed other industry players like Chipotle Mexican Grill, Inc. (CMG - Free Report) , up 1.2%, Restaurant Brands International Inc. (QSR - Free Report) , down 14.1%, and Brinker International, Inc. (EAT - Free Report) , up 49.5% in the past six months.
Stock Price Performance
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for LOCO. The stock is trading above its 50-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in LOCO's financial health and prospects.
50-Day Moving Averages
Image Source: Zacks Investment Research
Factors Favoring LOCO Stock Surge
The company is benefiting from an increase in system-wide comparable restaurant sales. In the fiscal second quarter, LOCO reported a 4.5% increase in system-wide comparable restaurant sales, driven by their iconic Fire-Grilled Chicken, focus on value offerings and consistent operations.
El Pollo Loco is taking a strategic approach to its cost-saving measures, ensuring that food quality and customer experience are enhanced throughout the process. The company made strategic hires, including a new chief development officer, to streamline operations and reduce unit build costs. These efforts are expected to improve franchise growth and financial performance in the coming years. A new prototype design is expected to reduce the unit build cost to $1.8 million, which will further fuel franchise growth in 2025.
By leveraging fresh leadership perspectives and the expertise of long-standing team members, LOCO aims to realize the benefits of these initiatives by fourth-quarter 2024. These savings are expected to help balance the investments being made. With the progress achieved so far and a clear plan for the year ahead, the company is optimistic about reaching 18% restaurant contribution margins by 2025, strengthening its confidence in sustainably achieving 18-20% margins in the future.
El Pollo Loco relaunched its fire-grilled burritos and introduced new creamy chipotle sauce and queso blanco at competitive price points, enhancing the value perception of its menu. This contributed to positive feedback and sales growth.
To drive growth, a new chief development officer and franchisee development incentives were introduced, to accelerate expansion in 2025. Management is committed to building a strong franchise pipeline and proving the brand’s geographic scalability.
Estimate Revision Favoring the LOCO Stock
Reflecting the positive sentiment around LOCO, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have raised their estimates for the current and next fiscal by 12.7% to 80 cents and 14.1% to 89 cents, respectively.
Image Source: Zacks Investment Research
LOCO Trading at a Discount
The company is currently valued at a discount compared with the industry on a forward 12-month P/E basis. LOCO’s forward 12-month price-to-earnings ratio stands at 15.7, significantly lower than the industry’s ratio of 24.57 and the S&P 500's ratio of 21.45.
P/E (F12M)
Image Source: Zacks Investment Research
Conclusion
Despite the stock's impressive gain in the past six months, investors can still consider buying the stock. Strategic leadership under Williams and successful cost-saving initiatives are expected to improve margins and boost franchise growth. With the company's forward-thinking approach, including new menu innovations and unit-build cost reductions, along with upward revisions in earnings estimates and a favorable P/E valuation compared with the industry, the Zacks Rank # 2 (Buy) company presents a compelling opportunity for long-term growth at a discounted price.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.