PTLO Stock Study (6-27-24)

Posted by Mark on August 12, 2024 at 06:40 | Last modified: June 27, 2024 09:21

I recently studied Portillo’s Inc. (PTLO) with a closing price of $9.95.

M* writes:

     > Portillos Inc serves the Chicago street food industry through
     > high-energy and multichannel restaurants designed to ignite
     > the senses and create memorable dining experiences. It owns
     > and operates fast-casual restaurants in the United States,
     > along with two food production commissaries in Illinois.
     > Its menu includes hot dogs, beef and sausage sandwiches,
     > sandwiches and ribs, salads, burgers, chicken, Barnelli’s
     > pasta, sides and soup, and desserts and shakes.

In a nod to Manifest Investing, “Portillo’s is not a sponsor of this program but they probably should be.”

Since 2019, the small-size company has grown sales and EPS at annualized rates of 10.0% and 451%, respectively. It has been profitable since ’22 and lines are up, straight, and parallel since then. More data is needed to evaluate visual inspection and for that reason, any potential stock investment should be considered non-core with a smaller position size.

PTPM trails peer and industry averages while ranging from -3.2% in ’21 to 4.1% in ’23 with a last-5-year mean of 1.6%. ROE averages 0.3% over the last three years and appears to trail peer and industry averages. Debt-to-Capital is about equal to peers and less than the industry in falling from 100% (’19) to 63.1% (’23) with a last-5-year mean of 79.1%.

Current and Quick Ratio are 0.4 and 0.2, respectively, per M*. Interest Coverage is 2.3. While these numbers could stand improvement, Value Line gives a B+ grade for Financial Strength.

With regard to sales growth:

• YF projects YOY 8.1% and 11.8% for ’24 and ’25, respectively (based on 11 analysts).
• Zacks projects YOY 7.7% and 12.2% for ’24 and ’25, respectively (7 analysts).
• CFRA reports ACE of 8.1% YOY and 9.9% per year for ’24 and ’23-’25, respectively (11).
• M* offers a 2-year annualized ACE of 10.5%.

I am forecasting below the range at 7.0% per year.

With regard to EPS growth:

• MarketWatch projects 42.8% and 39.6% per year for ’23-’25 and ’23-’26, respectively (based on 11 analysts).
• Nasdaq.com projects 21.9% YOY and 28.7% per year for ’25 and ’24-’26, respectively [5/5/1 analyst(s) for ’24/’25/’26].
• Seeking Alpha projects 4-year annualized growth of 6.0%.
• YF projects YOY 12.5% and 19.4% for ’24 and ’25, respectively (8), along with 5-year annualized growth of 20.2%.
• Zacks projects YOY 13.5% contraction for ’24 and 21.9% growth for ’25 along with 5-year growth of 6.0%/year (7).
• Value Line reports annualized ACE of 19.3% from ’23-’28 (4).
• CFRA reports ACE of 15.6% YOY and 15.9% per year for ’24 and ’23-’25, respectively (7).

My 6.0% per year forecast is at the bottom of the long-term-estimate range (mean of four: 12.9%). Initial value is ’23 EPS of $0.32/share rather than 2024 Q1 $0.40 (annualized).

My Forecast High P/E is 35.0. High P/E is NMF, 162, and 76.3 for ’21, ’22, and ’23, respectively: not much to go on. The last-5-year-mean average P/E is 85.2. I am forecasting at the top of my comfort zone.

My Forecast Low P/E is 24.0. Low P/E is NMF, 59.3, and 43.4 for ’21, ’22, and ’23, respectively: also not much to go on. I am forecasting (arbitrarily) below the range.

My Low Stock Price Forecast (LSPF) of $7.70 is default based on initial value given above. This is 22.6% less than the previous close and 19.8% less than the 52-week low.

These inputs land PTLO in the HOLD zone with a U/D ratio of 2.3. Total Annualized Return (TAR) is 8.6%.

PAR (using Forecast Average—not High—P/E) of 5.0% is less than I seek for a small-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 5 studies done in the past 90 days (my study and 3 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.0%, 10.9%, 40.0, and 21.0, respectively. I am lower on all but the last (24.0). Value Line projects a 2025 average annual P/E of 24.3 that appears to be less than MS and mine (albeit 3 years apart).

MS high / low EPS are $0.67 / $0.40 versus my $0.43 / $0.32 (per share). My high EPS is less due to a lower growth rate and initial value. Value Line’s ACE high EPS of $0.87/share soars above both.

MS LSPF of $8.40 matches the default value. This is 9.1% higher than mine, which results in more aggressive zoning.

With regard to valuation, PEG is 5.2 and 3.8 per Zacks and my projected P/E, respectively: both extremely overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is low at 0.3 but not very meaningful due to brief data history.

I believe MOS to be robust in the current study primarily because my inputs are at or below respective analyst/historical ranges. MS TAR 21.0% is much higher than mine, but the tiny MS sample size limits meaningful comparison.

The common tendency of IPOs to lose money often puts a damper on early Quality rankings. As such, Portillo’s should be reserved for speculators who want to build a non-core (i.e. smaller) position.

Per U/D, PTLO is a BUY under $9.50/share. The stock needs to approach $7.50 in order to meet the BI TAR criterion given a forecast high price of $15.

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