We came across a bullish thesis on GEN Restaurant Group, Inc. (GENK) on Capitalist Letters’ Substack by Oguz Erkan. In this article, we will summarize the bulls’ thesis on GENK. GENK Technologies, Inc. share was trading at $8.35 as of Oct 4th. GENK’s trailing and forward P/E were 33.31 and 166.67 respectively according to Yahoo Finance.
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Founded in 2011 and led by its founder Gen Korean Restaurants is an all-you-can-eat restaurant chain in the casual dining market, specializing in Asian cuisine. The company has sustainably grown over the years opening 41 outlets till now and it plans to open 4-6 more by the end of this year. Gen has a system-based business model where customers cook their food on grills embedded in tables as the company sources pre-prepared ingredients from suppliers making it easier for diners while ensuring consistent quality across locations. This helps reduce operating costs as it eliminates chefs allowing Gen to maintain control over its cost structure, especially since chefs are typically the highest-paid employees in restaurants. This structure provides a competitive edge, as the system benefits from economies of scale, reducing marginal costs as more locations open.
Gen’s business could be often misunderstood by investors as they are not really in the food business but are here to provide a reliable, scalable system where the success of their chains depends less on the quality of their food. This is what makes brands like Gen powerful in comparison to single restaurants that competitively position themselves either by low prices or extreme differentiation as they cannot forever be the cheapest in town nor the best. Gen has proven that it is effective across multiple markets as it has entered diverse regions, like New York and Texas, demonstrating that its model resonates with customers in various demographics.
Gen’s business performance has remained solid since its IPO in 2023. The company reinvests nearly all profits into expanding its operations with a goal to open 250 new locations in the next 5 years showing the company’s commitment to long-term growth. Additionally, the company’s balance sheet is conservatively managed, with virtually no debt and a substantial cash cushion. Its system-oriented approach, high fixed costs, and low marginal costs have created a competitive advantage, particularly in an industry where many chains struggle with operational inefficiencies.
While Gen has been heavily investing in opening new outlets it has remained positive free cash flow Gen’s prudent approach can be seen through its balance sheet because of its minimal debt (around $5 million in government-funded loans) and $30 million in cash. This solid financial position limits investor risk, especially given the company’s high-fixed-cost business model, which creates a barrier to entry for potential competitors. Opening a Gen restaurant now costs around $3.5 million, and the payback period has increased to 2.5 years, meaning any new entrant would need substantial capital to compete with its scale.
Overall, Gen Korean Restaurants is an interesting pick for the long term give its well-established business model, positive market reception and sound financial management, which together position the company for continued expansion.
GEN Restaurant Group, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 7 hedge fund portfolios held GENK at the end of the second quarter which was 7 in the previous quarter. While we acknowledge the risk and potential of GENK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GENK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.