Del Taco Restaurants, Inc. (NASDAQ: TACO) is the country’s second-largest Latino-American restaurant chain when measured by the total number of units. All in all, TACO restaurants serve more than three million people in any given week. TACO’s offerings are fresh, tasty, and affordable. Though many do not know it, the truth is the Del Taco menus provide a litany of options aside from Mexican fare. Customers can also order a plethora of American favorites ranging from hamburgers to milkshakes, crinkle-cut French fries, and beyond. All in all, TACO has been in business since 1964.
TACO By the Numbers
Del Taco is quite the cash flow generator. The fast food restaurant is currently trading at a 25% when looking at price-to-sales (P/S). Furthermore, Del Taco sports an impressive price-to-free-cash-flow of (P/FCF) of 7.42. The cash flow generation allows the company to offer a 1.58% annual dividend yield to shareholders.
TACO has a price-to-earning (P/E) ratio of 22.14, meaning it is likely around fair value. Though a forward P/E ratio above 15 was once thought to be high, times have changed. It can be argued TACO might be a bit overpriced yet the truth is the stock’s forward P/E ratio is slightly elevated as shares of the company’s stock are trading less than $2 below its 52-week high of $11.99. If TACO slides back toward the lower end of its 52-week extremes, its forward P/E ratio will decrease in unison.
TACO has a beta of 2.08, meaning it is fairly volatile. If the stock market turns out to be a roller coaster in the weeks and months ahead, TACO will likely undulate right along with the rest of stocks.
The analysts are bullish on TACO. Take a look at the experts’ forecast for this Mexican-American restaurant chain and you will find they anticipate the stock will move up to $13.67. If TACO hits this level, it will have popped by more than 36%, as of June 7th. Of the three analysts who have provided TACO recommendations, two consider it a “buy,” one as a “hold,” and none consider it to be a “sell.”
Why was TACO Such a big Winner in 2020?
TACO climbed 14% in 2020, the year just about everyone would like to forget. This considerable rise is all the more surprising because 2020 was a terrible year for restaurants. TACO restaurants certainly took a blow from the ongoing pandemic yet its locations rebounded faster than expected, ultimately propping up the stock.
It is important to note TACO was down more than 60% earlier in the year so its bounce back to life is all the more impressive. Rewind to July and TACO management had stated coronavirus closures made a negative impact on the company’s sales yet this sales decline was only for the short-term. TACO sales decreased more than 20% in April of 2020 alone.
However, the sales decline improved to 7% in the ensuing month and returned to flat by the summer. TACO executives’ decision to square its focus on branding its restaurants throughout the southwest has proven successful. Though company dining rooms were closed at the start of the 2020 summer, it did not take long to return to normal. The pressing question is whether TACO can continue the momentum as we head into the summer of 2021 when the economy will be completely reopened.
Del Taco’s Q1 Earnings Provide Reason for Hope
If you are on the fence as to whether TACO is worthy of your investing dollars, consider the company’s most recent quarterly earnings performance as an indicator of future performance in quarters ahead. TACO’s first-quarter earnings came in at 7 cents per share, beating out the analysts’ estimate of six cents per share.
Furthermore, TACO had lost one cent per share in the same quarter one year ago. In other words, TACO’s earnings were about 17% higher than analysts anticipated and trending in the right direction on a year-to-year basis.
This performance comes on the heels of an even better quarterly earnings report in the preceding quarter when TACO turned in results of 20 cents per share. Expectations were for 14 cents per share.
There is a common thread emerging in which TACO surpasses analyst earnings estimates by a considerable margin. As long as the return to normalcy goes as planned, TACO stores will be buzzing this summer, meaning there is a chance TACO will blow away the analysts’ quarterly earnings expectations once again in the final quarters of the year.
Disclosure: Neither Matt Rego nor Spotlight Growth have any position or relationship with any companies mentioned in this article. No payment was made to create this article. This article should not be taken as a solicitation or recommendation to buy or sell any securities. Please conduct your own research and consult your financial advisor to determine your risk tolerance and investment path. We are not licensed brokers or investment advisors.