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5 Reasons to Add Red Robin (RRGB) to Your Portfolio Now

After a prolonged period of difficulty in the restaurant space, cautious optimism has resurfaced for the same. We believe the one restaurant stock that can help you gain an upper hand right now is Red Robin Gourmet Burgers, Inc. RRGB. This Zacks Rank #1 (Strong Buy) company has fine prospects and should make a value addition to your portfolio. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings and Sales Growth

Red Robin makes for a great pick in terms of Growth investment.

While Red Robin has a historical (last five years) earnings per share (EPS) growth rate of 12.3% compared with the Zacks categorized Retail-Restaurants industry’s average of 11.8%, investors should really focus on the projected growth. Here, the company is looking to grow at a rate of 10.3% over the next three to five years.

Propelling the earnings forward is the company’s solid revenue growth story. Its last five years revenue growth is 8.3%, higher than the industry average of 7.8%. Moreover, the projected sales growth for the current year is pegged at 5.9%, while the broader industry’s estimate is a mere 1.1%.

Notably, Red Robin has undertaken several brand revitalization initiatives such as menu innovation, operational improvement and introducing a better customer service platform to enhance guest experience and drive revenues. Furthermore, Red Robin is set on growing its off-premise, online-ordering business via carry-out, delivery and catering.

In fact, all these reasons substantiate the company’s Growth Score of ‘B’ on our style score system that helps us to identify potential outperformers.

Valuation Looks Rational

Red Robin has a Value Style Score of ‘B.’ The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount.

Though the company is currently trading at a trailing 12-months P/E multiple of 27.5 which is higher than the industry average of 26.6, its forward P/E (price relative to current year’s earnings) is lower at 22.8. This indicates that a more value-oriented path may be ahead for Red Robin stock.

Looking at the sales of the company, the company is currently trading at a P/S ratio of 0.6, much lower than the industry average of 3.6.

Moreover, Red Robin’s Price-to-Book ratio (used to compare a stock's market value to its book value) is also lower at 2.4 compared to the industry average of 2.9.

All these ratios deem the company undervalued in comparison to its industry peers and indicate a good time to buy.

Stock Price & Other Returns

Shares of Red Robin have rallied 15.7% year to date, outpacing the industry’s gain of 10.3%. While any stock can see a spike in price, it takes a real winner to consistently outperform the market. We noticed that Red Robin has outperformed the industry in some of the other time frames we considered too – 12-week and 52-week.



Moreover, the return on equity delivered in the trailing 12 months was an impressive 10.3%, while the industry returned 8%.

Notably, Red Robin’s go-forward plan RED2, as outlined in Feb 2016, aims to double the company’s EBITDA (earnings before interest, taxes, depreciation and amortization) by 2020 by focusing on three areas – revenue growth, expense management and efficient capital deployment.

Estimate Revisions

Red Robin has remarkably beaten/met earnings estimates in eight of the trailing nine quarters, with an average beat of 17.27% in the last four quarters. After reporting robust first-quarter 2017 results in May, the company upped its full-year 2017 EPS outlook.

Furthermore, upward estimate revisions reflect optimism in the stock’s prospects. Analysts have bumped up their earnings estimates for 2017 and 2018 by 4.4% and 7%, respectively, in the last two months.

Low Beta Stock

A stock with beta less than 1 suggests that the price movement of the stock is not highly correlated with the market. Since they are less volatile than the market, they are safer bets at the moment. Red Robin has an impressive beta of 0.64. Adding it to your portfolio brings down your portfolio’s overall beta, thereby reducing its risk.

Other Stocks to Consider

Here are some other favorably ranked stocks in the same industry you can also consider:

Dave & Buster’s Entertainment, Inc. PLAY is carries a Zacks Rank #1. The company’s earnings have beaten estimates in all of the reported quarters since its IPO in Oct 2014, recording an average positive surprise of 30.5% in the last four quarters.

Diversified Restaurant Holdings, Inc. SAUC is another Zacks Rank #1 company. Its earnings have beaten/met estimates in all of the trailing four quarters, recording an average positive surprise of 45.83%.

Del Taco Restaurants, Inc. TACO is another Zacks Rank #2 company whose earnings have surpassed/met estimates in three of the trailing four quarters with an average positive surprise of 5.69%.

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Dave & Buster's Entertainment, Inc. (PLAY): Free Stock Analysis Report
 
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