Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR) took a near 8% dip before rebounding to close down 3% on Wednesday, following the company’s release of the Q1 2017 earnings report. You may think that the company reported abysmal earnings and missed the street’s expectations by a landslide, but this not what happened. Restaurant Brands actually reported a beat on the top and the bottom-line, but many traders weren’t happy with the results because they were piling up in the stock before the earnings release with the hopes that the company would knock one out of the ballpark.
Sure, Restaurant Brands has been known to impress in its quarterly reports, but let’s be realistic, a company cannot “knock one out of the ballpark” in every single quarter. The long-term fundamentals are still intact, and I believe Restaurant Brands is one of the best long-term plays on the TSX after its recent acquisition of Popeyes Louisiana Kitchen Inc., as the management team sets its sights on the fried chicken market.
The company beat on both earnings and revenue, so why is the stock pulling back?
Despite beating on the top and bottom-lines, comparable-store sales for recently opened restaurants decreased by 0.1% at both Burger King and Tim Hortons locations. The street was expecting comparable-store sales to increase by 1.5% and 0.8% at Burger King and Tim Hortons respectively according to the research firm Consensus Metrix. Although comparable sales numbers weren’t great, net restaurant growth was still strong. Burger King and Tim Hortons saw a 5.1% and 4.6% in net restaurant growth for the quarter.
Sure, I get that investors demand perfection at this point because the stock has had an incredible run. Many traders may be looking for short-term gains from the stock’s momentum, but I don’t think the comparable sales drop is anything to be worried about. There’s no question that competition is heating up in the quick-serve restaurant space, but I believe 3G Capital could easily turn these weak comparable-store sales numbers around. Any further weaknesses in the stock price following this earnings report are nothing more than a long-term buying opportunity for Canadian growth investors.
Going forward, the management team is going to be focusing its efforts on unlocking the true strength of the Popeyes Louisiana Kitchen brand. Currently, Popeyes has over 2,600 restaurants across 26 nations, so the sky is the limit when it comes to growth potential. The fried chicken market is booming, and as a fast-food investor, it’s definitely where you want to be if you seek growth potential. I think 3G Capital will unlock a gigantic amount of long-term value for investors, and those patient enough to hold the stock for many years will be rewarded.
Although the stock soared by a huge amount over the past year, I still think it’s a great buy for now and on any dips which may happen going forward. As a long-term investor, you’ll still do very well in five years from now, even if the stock isn’t a value play at current levels. I believe the growth prospects and the management team are worth every penny of the premium valuation.
