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Has A 50% Climb Brought This Stock To Fair Value?

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February 19, 2015 6:58 pm
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Has A 50% Climb Brought This Stock To Fair Value?

Share of Popeyes Louisiana Kitchen Inc (NASDAQ: PLKI) have risen 54.3 percent over the past six months versus a 7.4 percent return for the S&P 500. Appreciation has been driven by strong growth in same-store sales, activist interest and consistently strong analyst ratings. The following trailing twelve month and projected 2015 growth figures add some context to the recent jump in price.

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With shares at their all-time high, it makes sense to consider the stock if it has exceeded its fair value. To determine if this is the case, a model was constructed to compare the company to its peers in the fast casual and fast food space.

The multiples used are PE, PEG, EV/EBIT, EV/EBITDA and EV/Sales. Metrics up and down the income statement were used to minimize estimation error while still considering intricacies at the bottom of the income statement.

Forward multiples were used to include growth priced into the stock.

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The result is an estimated share price of $59.37; this is 2.8 percent below the current share price. This means that if Popeyes is perfectly comparable to other companies in the fast food and fast casual industry, shares have found their fair value.

That is not to say that the stock does not have additional upside.

For one, several catalysts could make the company more valuable than its peers. For example, activist investor Red Mountain Capital has a 5.06 percent stake in Popeyes. The fund has indicated it is in talks with management to boost buybacks, cut costs and other strategic initiatives.

Further, it is hard to fight against momentum.

Shares of Popeyes last traded at $61.41.

Image credit: Roy, Flickr


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