The Sushiholic

Smart Choice Restaurant & Food Lovers

Best Restaurant

Is It Time To Consider Buying Restaurant Brands New Zealand Limited (NZSE:RBD)?

While Restaurant Brands New Zealand Limited (NZSE:RBD) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10{5057b528e2ec7fd6c3736aa134727341eae4fdf6dd188ded3c2a814c0866380c} in the past couple of months on the NZSE. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Restaurant Brands New Zealand’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Restaurant Brands New Zealand

What’s the opportunity in Restaurant Brands New Zealand?

Restaurant Brands New Zealand is currently expensive based on my price multiple model, where I look at the company’s price-to-earnings ratio in comparison to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Restaurant Brands New Zealand’s ratio of 56.25x is above its peer average of 47.85x, which suggests the stock is trading at a higher price compared to the Hospitality industry. In addition to this, it seems like Restaurant Brands New Zealand’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What does the future of Restaurant Brands New Zealand look like?

earnings-and-revenue-growth

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Restaurant Brands New Zealand’s earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? RBD’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe RBD should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on RBD for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for RBD, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

In light of this, if you’d like to do more analysis on the company, it’s vital to be informed of the risks involved. Be aware that Restaurant Brands New Zealand is showing 3 warning signs in our investment analysis and 1 of those shouldn’t be ignored…

If you are no longer interested in Restaurant Brands New Zealand, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.