Is FAT Brands a Good Recovery Stock to Buy?

FAT Brands (NASDAQ:FAT) has a portfolio of some top restaurant brands in the industry, including Fatburger, Marble Slab Creamery, and Johnny Rockets. The company also announced this month that it was acquiring restaurant chain Twin peaks for $300 million. It unlocks yet another exciting growth opportunity for a business than in its most recent quarter, grew its sales by more than 200% to $8.3 million. The business has been steadily growing its weekly sales amid re-openings and an increase in vaccination rates for COVID-19.

The company's wheeling and dealing of late (it closed on its acquisition of Global Franchise Group earlier this year) makes it an intriguing stock to own for investors who want to cash in on a resurging economy and consumers who are eager to go back to their normal pre-pandemic habits, including eating out at their favourite restaurants.

Year to date, shares of FAT Brands are up more than 110% while the S&P 500 has risen by a more modest 20%.

The downside is that the company isn't profitable, incurring losses of $17 million (on revenue of $26 million) over the trailing 12 months. The company has also burned through $12 million in cash from its daily operations during that time. For investors, that could be problematic because it could lead to share issues down the road or more long-term debt – which the company already has a lot of at $146 million (compared to assets of $169 million).

FAT Brands isn't the safest buy given the debt it is carrying and its level of cash burn. However, if you're willing to take on the risk, it could be a good recovery stock to hold in your portfolio as there's a lot of potential for its shares to climb higher if it can continue delivering strong sales numbers.