BJ’s Restaurants, Inc. (BJRI), Brinker International, Inc. (EAT): Paying a Premium for Terrible Performance?

Using this metric, we find again that Brinker International, Inc. (NYSE:EAT) sits on top of the hill with $0.22 of free cash flow per dollar of sales. Buffalo Wild Wings (NASDAQ:BWLD) generates about $0.03 of free cash flow, but Darden Restaurants, Inc. (NYSE:DRI)’s heavy debt load hurts the company’s performance, and they generate just $0.01 of free cash flow per dollar of sales. Unfortunately for BJ’s investors, the company not only was core free cash flow negative in the current quarter, but the company has been negative on average over the last four quarters.

Terrible performance and overvalued at the same time
It’s one thing if a company struggles with low margins and negative cash flow yet sells at a discount to its peers. However, in BJ’s Restaurants’ case the stock sells for a significant premium to their competition.

If we use the PEG+Y ratio, we can compare these companies’ valuations including their dividend yields. PEG+Y simply takes the P/E ratio and divides it by the combination of the company’s yield and expected growth rate.

Using this measure, Brinker International, Inc. (NYSE:EAT) seems like the best value with a PEG+Y of 0.92, due to the company’s 2.36% yield and 13.6% growth rate compared to a forward P/E of 14.75. Darden seems a bit expensive with a PEG+Y of 1.44, and its 4.7% yield isn’t enough to offset the 15.4 P/E ratio and lackluster 6% expected growth. Buffalo Wild Wings carries a PEG+Y of 1.6, but the company’s growth recently has been very strong.

BJ’s Restaurants, Inc. (NASDAQ:BJRI) investors are currently paying a PEG+Y of 1.8, which doesn’t seem warranted based on the company’s results. Just because this could be a great growth story, doesn’t mean the stock warrants a forward P/E north of 31. This growth story isn’t delivering piping hot earnings, but investors who aren’t paying attention could end up getting burned.

The article Paying a Premium for Terrible Performance? originally appeared on Fool.com and is written by Chad Henage.

Chad Henage has no position in any stocks mentioned. The Motley Fool recommends BJ’s Restaurants and Buffalo Wild Wings. The Motley Fool owns shares of BJ’s Restaurants, Buffalo Wild Wings, and Darden Restaurants.

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