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Strategies & Market Trends : Value Investing
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To: Tomato who wrote (5363)11/30/1998 9:48:00 PM
From: Shane M   of 78669
 
Tomato,

One thing that I've grown to realize about restaurant stocks is that many are captive to their own share price for growth. They don't generate enough cash to expand rapidly as many like to do, so they are dependent on dilutive stock offerings or alot of debt to come up with the cash with which to grow.

If the stock isn't highly priced, well, it's difficult to raise capital through the equity markets. This forces companies to debt for expansion, and it's difficult to justify taking on debt if your ROE is 9% or so. So really, the best means of expansion seems to be in achieving an inflated stock price and issuing more shares of stock at an inflated price.

For this reason I've backed away from an earlier restaurant stock that I liked at this time last year (RDHS), and avoided (thankfully) another that I was somewhat interested in (STAR).

Shane
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