Those who invested in Chipotle Mexican Grill (CMG) during its IPO in early 2006 have seen its share price soar by nearly 3,500%. It’s too late to get on the rocket ship, but what stock could be the next Chipotle?
Portillo’s is a regional fast-casual chain with which few are familiar, but that makes it exciting because the “story” is not yet out.
The company has loyal customers, and it is growing steadily. So, is now the time to take a chance on the home of America’s favorite Italian beef, burgers, salads, Chicago-style hot dogs, and chocolate cake?
Portillo’s Is No Flash In The Pan
Serving up Chicago-style street food since 1963, Portillo’s began as a small trailer called the “The Dog House.” Years later, the brand was known throughout Chicago.
As of 2022, the company has over 70 locations across nine states. Whether die-hard fans are in the mood for an Italian beef sandwich, cheese fries, or a slice of homemade cake, they continue to flock to this growing establishment.
The chain works hard to maintain its renowned atmosphere of vintage-style diners. And good ambience is just the beginning. Portillo’s also has a direct-to-consumer business that ships sandwiches across the nation. At its IPO, the company had shipped 2.7 million sandwiches.
In October 2021, Portillo’s went public. It opened for trading at $26 per share. By mid-day, shares traded close to $40. The company sold around 20.3 million shares, raising $405 million. It’s an iconic, people-first brand that has a bright future.
Portillo’s plans for expansion will focus on states with better economies than Illinois. Locations in Arizona, Florida, and Texas will make up the majority.
The goal is to set up in states where the population is growing — unlike Illinois whose 2021 population shrank by over 140,000. And with 45 locations in Illinois, there is little room for in-state expansion.
Of course, there’s no guarantee that Portillo’s will thrive outside its home market. However, thanks to its direct-to-consumer model, Americans are already familiar with the brand’s sandwiches, with the highest number sold in Texas.
Low turnover makes this chain stand out
The restaurant business is known for having a high turnover rate, but not Portillo’s. This brand’s people-centric approach doesn’t end with its customers; it supports employees too.
Recently, Portillo’s made QSR’s “2022 Best Brands to Work For” list — and that’s not the only recognition it received. Forbes also listed Portillo’s as the number one restaurant company on America’s “2021 Best Midsized Employers” list.
The company has an internal promotion rate of 80%, focuses on its culture-driven approach, and offers an extensive employee benefits package. High internal morale and low turnover rates are a recipe for sustainable success — especially because this approach has been maintained for decades.
Time to talk money
Portillo’s serves food people love and provides a positive work environment, but what about the business?
The pandemic and economic downturn have been tough on the restaurant industry, and Portillo’s is no exception. Higher food prices forced the brand to raise its menu prices. These price hikes caused adjusted earnings before interest, taxes, depreciation, and amortization to decline by 10.7% year-over-year. However, Portillo’s latest financial earnings offer plenty to be excited about.
When comparing Q3 2022 vs Q3 2021:
- Total revenue increased by 9.5%, hitting $15.1 million
- Same-restaurant sales increased by 5.8%
While net income decreased from $3.3 million to $3.2 million, Portillo’s has the best unit-level economics among all fast-casual restaurants.
In fiscal 2022 to date, Portillo’s average unit volume (AUV) was $8.4 million, up from $6.9 million in 2021. By comparison, Chipotle’s 2021 AUV was just $2.2 million. As QSF said, “Portillo’s knows its pricing strategy is working.”
A good pick for value investors
Only time will tell how Portillo’s stock performs, given the ongoing bear market and macroeconomic variables. For example, in Q3 2022, Portillo’s felt the effects of inflation, seeing a 15.4 percent hike in commodities — mainly beef and chicken. This pressure is anticipated to remain between 13% and 15% in Q4 2022.
Over the past year, the price of shares has dropped by over 57%. The stock reached a 52-week high of $57.73 and is trading near $20 now. So, Portillo’s is looking more and more like a bargain. By our analysis, fair market value sits at $22.61, so still double-digit upside for new investors willing to nibble at this hot restaurant stock.