We came across a bullish thesis on Kura Sushi USA, Inc. (NASDAQ:KRUS) on Investment Talk’s Substack by Conor Mac. In this article, we will summarize the bulls’ thesis on KRUS. Kura Sushi USA, Inc. (NASDAQ:KRUS)’s share was trading at $95.78 as of Jan 2nd. KRUS’s trailing and forward P/E were 445.40 and 588.24 respectively according to Yahoo Finance.
A close-up of a sushi chef, displaying his care and attention to detail in making a dish.
Kura Sushi has repeatedly used share issuance to strengthen its balance sheet and fund growth, employing a strategy that has proven effective in expanding the business. In 2021, the company raised $47 million by issuing 1.1 million shares at $45 each, using part of the proceeds to repay a pandemic-era line of credit. Another offering in 2023 raised $65 million, followed by a third issuance in November 2024, which netted $64.6 million at $85 per share. With over $100 million in cash, Kura is well-positioned for the next few years, supporting its expansion plans, including 14 new store openings in fiscal 2024 and a similar number anticipated for fiscal 2025. However, share issuance does come with potential downsides, such as dilution of shareholders, but Kura’s management has demonstrated a strong track record in capital allocation. By issuing shares when the stock price is strong, they have avoided debt and prioritized expansion, leading to a significant increase in institutional ownership. Over the period of rising share count, the company’s revenue, gross profit, and book value have more than offset dilution, with revenue increasing by 90%, gross profit rising by 152%, and book value growing by 97% since 2020.
Although Kura has yet to return to pre-pandemic profitability, its revenue has grown 270% since 2019, with a compound annual growth rate (CAGR) of 30%. The company now generates $238 million in trailing revenue, up 27% year-over-year, and expects mid-teens growth in fiscal 2025. Operationally, Kura has managed to maintain a restaurant-level operating margin above 20% for three consecutive years, despite challenges such as rising food and labor costs due to inflation. Additionally, the company’s SG&A margin has improved to 14.1% in fiscal 2024 and is expected to decrease further in fiscal 2025. Average Unit Volumes (AUVs) have increased by 35% since 2019, holding steady at $4.23 million in 2024.
However, traffic has been down, with comparable restaurant sales in decline since mid-2023, reaching negative growth in Q4 2024. Despite this, CEO Hajime Uba expressed optimism, noting that sales pressures improved later in the quarter, and the company avoided negative comparable sales for the full year, achieving a modest 0.7% growth. Looking forward, Kura has been conservative in its revenue guidance for fiscal 2025, reflecting a cautious approach after revising guidance downward in 2024. Management is also optimistic about potential savings from a self-seating system, which could further improve profitability. Overall, while Kura faces macroeconomic pressures, its business model remains strong, and with ongoing growth and operational improvements, it continues to present a compelling long-term investment.
Kura Sushi USA, Inc. (NASDAQ:KRUS) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held KRUS at the end of the third quarter which was 12 in the previous quarter. While we acknowledge the risk and potential of KRUS 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 KRUS 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.