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Our Chief Investment Advisor, Iain Butler, and a team of The Motley Fool’s most talented investors from across the globe recently embarked on an unprecedented mission:

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Is Cara Operations Ltd. a Tasty Play?

Cara Operations Ltd. (TSX:CARA) is a Canadian restaurant operator with many different brands, such as Swiss Chalet, Milestones, Kelsey’s, East Side Mario’s, and St-Hubert. The company has a huge presence in Ontario, and the management team is determined to increase same-store sales by leaps and bounds over the next few years. The stock is down over 27% from its high and may be an attractive choice for value investors looking to get a nice margin of safety to go with their investment.

I think there’s a huge amount of potential for the company to expand across the country. The management team is currently staying in their circle of competence, and there’s nothing wrong with that. The Ontario market is huge, and Cara Operations wants to dominate the Ontario dine-in restaurant space.

Cara Operations is a fairly small company with a $1.6 billion market cap; going all out on international expansion isn’t in the cards right now, so don’t expect the kind of growth you’d get from Restaurant Brands International Inc. Cara Operations can be comparable to Restaurant Brands, but it doesn’t make sense to compare them directly as there are way too many differences.

The dine-in space is way more cyclical than the fast-food space; you can ride the wave of a cyclical upswing, but you could get seriously hurt if you hang on to the stock during a recession. I’m a huge fan of the buy-and-hold-forever strategy, so Cara Operations wouldn’t be a stock I’d be interested in for the long term, but I think it’s shaping up to be a great value play that may enjoy a cyclical upswing as the economy improves.

The company has over two-thirds of its restaurants in Ontario, which is expected to be a strong market for many years to come. But there’s also a considerable amount of exposure to the unstable Albertan market, which accounts for approximately 12% of Cara Operations’s restaurants. The Albertan exposure is expected to remain weak over the medium term, and it’s a huge reason why the stock is down a considerable amount from its high.

As we head into the latter part of the year, the company is expected to unlock synergies from its recent acquisitions in St-Hubert and Original Joe’s. St-Hubert is ramping up on its national food retail business and is also expected to produce and supply recipe unit products to Cara Operations’s existing restaurants across the country.

Cara Operations has more room for acquisitions, and it’s expected that the company will grow systems sales to $3.7 billion by 2022. The stock trades at a 21.73 price-to-earnings multiple, which is not cheap, but I think it’s an interesting play for those seeking a solid cyclical name.

Canada's answer to Amazon.com

You've probably never even heard of this up-and-coming e-commerce powerhouse headquartered in Eastern Ontario...

But, despite coming public just last year, it's already helping the likes of Budweiser... Tesla... Subway... and Red Bull move $9.9 BILLION (and counting) worth of goods online each year.

And now it's caught the eye of the legendary investor who got behind Amazon.com in 1997 -- just before it shot up over 23,000% and made investors like you and me rich beyond their wildest dreams.

Click here to discover why this investor says it's time to buy.

Fool contributor Joey Frenette owns shares of Restaurant Brands International Inc.

NEW! This Stock Could Be Like Buying Amazon In 1997

For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.

Stock Advisor Canada’s Chief Investment Adviser, Iain Butler, also recommended this company back in March – and it’s already up a whopping 57%!

Enter your email address below to find out how you can claim your copy of this brand new report, “Breakthrough IPO Receives Rare Endorsement.”

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