Over the last six months, Yum! Brands’s shares have sunk to $145.90, producing a disappointing 9.8% loss – a stark contrast to the S&P 500’s 14.2% gain. This may have investors wondering how to approach the situation.
Given the weaker price action, is now an opportune time to buy YUM? Find out in our full research report, it’s free.
Why Does YUM Stock Spark Debate?
Spun off as an independent company from PepsiCo, Yum! Brands 
YUM is a multinational corporation that owns KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill.
Two Things to Like:
1. Restaurant Growth Signals an Offensive Strategy
A restaurant chain’s total number of dining locations influences how much it can sell and how quickly revenue can grow.
Yum! Brands sported 64,166 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 3.9% annual growth, among the fastest in the restaurant sector. Additionally, one dynamic making expansion more seamless is the company’s franchise model, where franchisees are primarily responsible for opening new restaurants while Yum! Brands provides support.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Yum! Brands has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the restaurant sector, averaging 19.3% over the last two years.
One Reason to Be Careful:
Same-Store Sales Falling Behind Peers
Same-store sales is an industry measure of whether revenue is growing at existing restaurants, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Yum! Brands’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 2% per year.
Final Judgment
Yum! Brands’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 21.9× forward P/E (or $145.90 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
