- Are falling margins on rising revenues a concern at all (maybe the cause of the drop in stock price)? Maybe continued digitalization helps margins in the future? I noticed that they had a Technology Officer hired in 2018.
- The current P/E looks good relative to historical, but is the somewhat high-ish P/S ratio normal for the restaurant industry?
- Regarding long term safety and quality, would you consider QSR in the top 10% of all Canadian stocks, and do you have any long term concerns?
- Any thoughts on their ambitious international expansion goals including China?
- Is the stock price more influenced by the direction of the TSX or NYSE or not necessarily either?
Names in the restaurant industry and some companies that are considered “value names” have been under pressure recently. In addition, the weak revenue growth of QSR in recent quarters also compressed the valuation multiples of QSR from around 20x to 17.6x now. QSR has the lowest P/E among the restaurant royalty names like YUM, MCD, and DPZ.
We think QSR is a high-quality capital-light royalty name that is facing a near-term headwind; its valuation looks more decent than ever before. We think QSR continues to have a long runway for growth in the international markets, given its brand portfolio is still relatively underpenetrated in emerging markets. It could be considered within the top 10% of Canadian names in terms of business quality. That being said, the restaurant industry is fiercely competitive, so we would size the position appropriately.