Restaurant Brands International Inc (NYSE:QSR) continues its emergence in the fast food industry. By combining three large franchises, the company remains well-positioned to grow its industry leadership. Consistent revenue, income, dividend and store growth all place QSR stock in an environment where profit growth should drive the stock price higher.
The Oakville, Ontario-based fast-food holding company formed in December 2014 when Canadian fast-food giant Tim Hortons and American fast food chain Burger King merged. The company also added the Popeyes Louisiana Kitchen franchise in 2017. With the addition of Popeye’s, QSR became the third largest fast-food restaurant operator in the world. Only McDonald’s Corporation (NYSE:MCD) and Yum! Brands, Inc. (NYSE:YUM) exceed Restaurant Brands in size.
A Pullback Has Given QSR an Attractive Multiple
QSR stock has pulled back over the last few months. Between the beginning of 2016 and October 2017, the stock doubled in value. Since October, it has corrected by almost 20%. This drop in the stock price has taken the price-to-earnings (PE) ratio to about 22. Moreover, profit growth will take the forward PE to about 16 at current prices.
Both of its larger direct peers and the S&P 500 itself support larger PE ratios. Some of its smaller peers such as Chipotle Mexican Grill, Inc. (NYSE:CMG) and Wendys Co (NASDAQ:WEN) also trade at higher multiples. Others such as Jack in the Box Inc. (NASDAQ:JACK) or Sonic Corporation (NASDAQ:SONC) trade at multiples below 20. However, like all fast food companies other than QSR, they have struggled to grow revenues.
Revenue and Dividends Bolster the Case for QSR Stock
QSR stock is not immune to revenue challenges. Of the three chains it owns, only Burger King saw increases in same-store sales, which rose 3.1%. Both Tim Hortons and Popeyes had to rely on new store openings to grow revenues in their overall divisions. Thankfully, Burger King makes up about two-thirds of revenue for QSR stock. Burger King restaurants also operate as franchises in most cases, which tends to yield higher margins than their company-owned counterparts.
QSR also continues to improve on dividends.
Since the present iteration of the company was founded in 2014, it has paid a dividend. It has also increased this dividend every year — often more than once. With a yield of 3.16%, it even beats McDonald’s dividend. In the last year alone, QSR took its annual dividend from 72 cents per share to $1.80 per share.
Pay Attention to Growth Potential for QSR Stock
QSR stock also has the most growth potential. QSR stock has a market cap of around $14 billion. McDonald’s market cap stands at almost $127 billion. However, with their presence in over 100 countries, MCD has already realized much of its growth potential. McDonald’s has nearly 37,000 restaurants, compared with less than 16,000 for Burger King.
About 2,600 Popeyes and nearly 4,750 Tim Hortons currently operate.
Over 3,800 of the Tim Hortons restaurants operate in Canada, compared with just over 800 in the U.S. The United States has roughly ten times the population, which speaks to the growth potential in the U.S. alone. Taking Tim Hortons in the U.S. to half of the proportional coverage it enjoys in Canada would add about 18,000 restaurants in the United States. Also, like its peers, Tim Hortons has its eyes on worldwide expansion. It currently operates in 12 countries on three continents. So, regarding potential growth, QSR stock stands as the winner in the industry.
The Bottom Line for QSR Stock
Growth on many fronts positions QSR stock for gains bolstered by company growth.
Of its peers, QSR faces fewer struggles with revenue growth. Moreover, analysts predict double-digit profit growth in future years as numerous markets have yet to be tapped in both the U.S. and the world.
Hence, even if the fast-food industry struggles on same-store sales growth, overall revenue growth should stay on track. This growth should bolster the QSR stock price for years to come. With the recent pullback in the QSR stock price, now might be the time to look at buying.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.