We came across a bearish thesis on Restaurant Brands International Inc. (QSR) on Substack by Monopolistic Investor. In this article, we will summarize the bears’ thesis on QSR. Restaurant Brands International Inc. (QSR)’s share was trading at $62.47 as of Jan 30th. QSR’s trailing and forward P/E were 15.66 and 11.61 respectively according to Yahoo Finance.
A Burger King sign with a loyal customer eagerly awaiting their order.
Restaurant Brands International (QSR) owns globally recognized restaurant brands such as Burger King, Popeye’s, and Tim Hortons, operating over 31,500 locations across 120+ countries. Despite this broad reach, the company’s position in the market is somewhat mediocre when compared to competitors like Yum! Brands and Aramark. While QSR’s efficiency stands out in comparison to some rivals, with decent returns on invested capital, its profit margins leave much to be desired. Gross and operating margins are relatively low for a company that isn’t in a monopolistic position, which could limit its growth potential in the long term.
Financial health is another concern for QSR. The company’s balance sheet is weighed down by a net debt position, with more liabilities than cash on hand. This is further evidenced by a high Debt/EBITDA ratio of 6.4, indicating that it could take nearly seven years for the company to pay off its debt at the current rate of earnings. This level of debt is a red flag, as it surpasses the typical threshold of 3x debt to EBITDA that many investors prefer for stability. Despite this, QSR has a net equity cushion that offers some support, though it’s far from ideal.
Revenue growth for QSR has been sluggish, with its financials showing a stagnant trend. While the company has managed to maintain a steady top line, its net income has remained flat, suggesting limited profitability gains. Operating expenses are not growing at a rate that would signal a meaningful push for expansion or innovation. This stagnation is a concern for investors seeking growth, as QSR seems unable to break out of its current pace.
Valuation analysis presents a mixed picture. While some metrics suggest the stock might be undervalued at its current price of $61.82, the company’s slow growth and lack of a competitive edge make it less appealing compared to other food industry stocks, like Mondelez (MDLZ), which benefits from a broader portfolio of brands and global reach. In conclusion, Restaurant Brands International’s stagnant business model, combined with its high debt and low profit margins, makes it less attractive as an investment. There are better opportunities elsewhere, especially for those seeking companies with higher growth potential and a more robust financial position.
Restaurant Brands International Inc. (QSR) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 29 hedge fund portfolios held QSR at the end of the third quarter which was 22 in the previous quarter. While we acknowledge the risk and potential of QSR 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 QSR 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.