One thing I look for as a key attribute necessary for most equities is how stable and predictable I believe the underlying business’ growth prospects are moving forward. In the financial model I use, I take a significant amount of time with each investment investigating the company’s growth prospects to come up with a long-term growth rate I believe to be reflective of the underlying business, industry fundamentals, and long-term economic outlook for the areas in which a given business operates.
Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR) is the parent company of Tim Horton’s, Burger King, and now Popeye’s Louisiana Chicken. These franchise-oriented businesses have continued to grow at fantastic rates, enticing investors to buy into the growth plan of this business and bid the share price higher relative to earnings than the competition.
Currently, Restaurant Brands demands a premium in the fast food, quick service segment of the restaurant industry, suggesting to investors and analysts that the market believes in the company’s ability to grow and earn exponentially higher profits in the future.
I am a believer in the business’ ability to grow, however, I have become more and more concerned with the company’s fattening valuation multiples relative to competitors for some time now. With a current price to earnings (P/E) ratio of 85, it will take investors 85 years of earnings at current levels to justify the per-share price paid today for Restaurant Brands stock.
The fundamental value that matters here is growth: if the company grows fast enough, this number doesn’t matter. Individual investors must do their own homework on this name and come to a growth number that makes sense before buying in.
Invest wisely, my friends.
