72 Year Old American Diner with 40% Upside?

While the world focuses on AI, the leaders over at Denny’s are snapping up shares as part of a buyback scheme. The move is perplexing at first glance with sales decidedly flat for some time and no obvious catalyst to spark growth on the top line near-term.

So, what exactly are the Board of Directors and management seeing in the numbers that makes the restaurant chain worthy of investing in?

Key Points

• Despite flat sales, Denny’s trades at 0.6x sales and 12.8x earnings, with 19.1% projected net income growth.

• Low cash and high debt raise risks, but steady free cash flow and cost-cutting have kept operations stable.

• Stronger same-store sales and a lower P/E than peers support analyst Buy ratings, with a 40% upside.

Dennys By The Numbers

Make no bones about it, Denny’s is no all-star company set to blow away investors scouting for huge wins. The company pretty ho-hum financials to put it mildly.

Take the for example the fact that back in 2015, management posted quarterly sales of $120 million and most recently in Q4 2024 reported $115 million on the top line. Those aren’t the kind of figures to imbue new shareholders with confidence to take a bite out of Denny’s stock.

But maybe there’s more to this American diner than meets the eye?

Trading at a market cap of $273 million yet with $452 million in annual sales, Denny’s is trading at just 0.6x sales. But there’s another metric that’s even more compelling and perhaps the one that is swaying management to snap up shares as part of the repurchase authorization from the Board that ranges from $15 to $25 million. It’s the net income forecasted growth rate of 19.1% annually over the next five years.

Now trading at just 12.8x earnings, that kind of growth rate would mean that Denny’s is trading at under 5x projected 2030 earnings, a veritable steal.

Yet if the prospects look so good, why is the market so timid on its prospects?

What Has The Market Jittery?

If there are reasons to be concerned about Denny’s they seem to lie on the balance sheet. We had do a double-take when we saw just $1.7 million in cash in the bank according to the latest financials.

Worse still, that’s offset by $261 million in long-term debt. Those numbers don’t appear sustainable until you look back a few quarters and see they’ve actually been pretty steady.

What’s making survival seem possible is the positive free cash flow that is interrupted every once in a while but not often enough to dent the cash balance much.

Various revenue-driving initiatives such as the value-meal promotions and extension thereof have been a boon to sales and kept diners coming back.

So, what’s the 10,000 foot view now?

What’s The Big Picture Snapshot?

It seems that restaurant sales have dipped $3.4 million or 5.5% due to lower same-restaurant sales and closures but that has been somewhat offset by higher franchise revenues, to the tune of $1.5 million, leading to a 3.5% pop in royalty income and franchise fees.

How Does Denny’s Look When Compared to Rivals?

Is Denny’s a Buy Sell or Hold?