1. Brinker International, Inc. (NYSE:EAT)
Forward P/E Ratio: 15.06
Earnings Growth This Year: 14.10%
Number of Hedge Fund Holders: 33
Short % of Shares Outstanding: 16.21%
Brinker International, Inc. (NYSE:EAT) is a casual restaurant company that owns, develops, and operates franchises of its restaurant brands. It operates through two main business segments including the Chili’s and Maggiano’s. The company owns more than 1,600 restaurants in the United States and 27 other countries.
The restaurant company is one of the worst affordable stocks to buy right now. Affordable because it is trading at 15 times its forward earnings, a 5% discount to its sector. And worst because it has a high short interest as a percentage of shares outstanding standing at 16.21%.
But that does not necessarily mean that it is not a viable investment opportunity. Brinker International, Inc. (NYSE:EAT) is popular among hedge funds in the second quarter 33 hedge funds had stakes in the company. Their total stakes amounted to $663.56 million. D E Shaw is the top shareholder with a position worth more than $131 million.
Being widely held by institutional investors is not the only positive thing about the company. It pretty much-surprised investors when its Q2 sales which topped analysts’ expectations. Its revenue for the quarter was $1.21 billion against the expectation of $1.16 billion.
The company’s same-store sales rose 11.9% year-over-year with free cash flow margins at 6.9% (up from 0.7% during the last year). These encouraging financials along with the raised EPS guidance for fiscal 2025 indicate on-going and upcoming profitability. Management expects EPS for the fiscal 2025 to be at around $4.55 (Midpoint).
Choice Equities Capital Management made the following comment about Brinker International, Inc. (NYSE:EAT) in its Q4 2022 investor letter:
“Our holdings are generally performing as anticipated. As a general statement, despite the potential economic headwinds, we continue to expect growing cash flows, and in nearly all cases operating margin expansion, into next year and beyond. Restaurants – Signs suggest our restaurant margin expansion thesis continue to play out as expected, as restaurants have historically been slow to walk back inflation-based menu price increases with their customers by lowering prices even if incoming food costs decline. Papa John’s Inc. (PZZA) and Brinker International, Inc. (NYSE:EAT) continue to execute well.
We continue to find new attractive investments, particularly under a broader theme of normalization. Somewhat like our restaurant margin expansion thesis, we are finding ample opportunities in other industries where companies look poised for margin expansion on the back of cost relief from normalizing prices on items such as freight, cotton or merchandising margins.”
While we acknowledge the potential of Brinker International, Inc. (NYSE:EAT) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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