BUSINESS
Chuy’s Holdings, Inc., through its subsidiaries, owns and operates full-service restaurants under the Chuy’s name in the United States. As of December 26, 2021, it operated 96 restaurants in 17 states, including the Southeastern and Midwestern United States. The company was founded in 1982 and is headquartered in Austin, Texas.
INVESTMENT RATING
With future capital returns forecasted to exceed the cost of capital, CHUY is expected to continue to be a Value Builder.
Chuy’s Holdings has a current Value Trend Rating of F (Lowest Rating).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing consistent signals. Chuy’s Holdings has a slightly negative Appreciation Score of 36 and a poor Power Rating of 26, leading to the Lowest Value Trend Rating.
Chuy’s Holdings stock is selling at targeted value. The current stock price of $28.95 compares to targeted value 12 months forward of $30.
This moderately low appreciation potential results in an appreciation score of 36 (64% of the universe has greater appreciation potential.)
Chuy’s Holdings has a Power Rating of 26. (This poor Power Rating indicates that CHUY only has a better chance of achieving attractive investment performance over the near to intermediate term than 26% of companies in the universe.)
Factors contributing to this poor Power Rating include: recent price action has been unfavorable; earnings estimate behavior for CHUY has been slightly negative recently; and the Eating Places comparison group is in a slightly weakened position currently.
INVESTMENT PROFILE
CHUY’s financial strength is low. Financial strength rating is 19.
Relative to the S&P 500 Composite, Chuy’s Holdings Inc has both Growth and Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that CHUY is higher risk. Relative weaknesses include: low historical profitability, low financial strength, and high stock price volatility. CHUY’s valuation is moderate: low dividend yield, moderate P/E ratio, and low price/book ratio. CHUY has unusually low market capitalization.
CURRENT SIGNALS
Chuy’s Holdings current operations are strong. Return on equity is rising, reflecting: and improving asset utilization.
Chuy’s Holdings current technical position is very weak. The stock price is in a 9.1 month down move. The stock has declined 20.9% from its prior high. The stock price is below its 200 day moving average which is in a downtrend.
ALERTS
Slight positive changes in fundamentals have recently occurred for Chuy’s Holdings Inc (NASDAQ: CHUY): significant quarterly earnings acceleration occurred.
The stock is currently rated F.
Chuy’s Holdings Inc (NASDAQ: CHUY) stock declined slightly by -0.1% on 5/2/24. The stock closed at $28.95. Moreover, trading volume in this decline was above average at 125% of normal. The stock has been weak relative to the market over the last nine months and has declined -5.2% during the last week.
CASH FLOW
In 2023, Chuy’s Holdings experienced a significant decline in cash of -$10.25 million (-13%). Sources of cash were lower than uses. Cash generated from 2023 EBITDA totaled +$54.73 million. Non-operating sources contributed +$3.33 million (+6% of EBITDA). Cash taxes consumed -$5.41 million (-10% of EBITDA). Re-investment in the business amounted to -$27.73 million (-51% of EBITDA). On a net basis, debt investors withdrew -$8.94 million (-16% of EBITDA) while equity investors pulled out -$26.22 million (-48% of EBITDA).
Chuy’s Holdings Non-operating Income, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Chuy’s Holdings Peer Group. (Since 2020 Non-operating Income, %EBITDA has experienced a very sharp recovery.) In most years, Chuy’s Holdings was in the top quartile and second quartile. Currently, Chuy’s Holdings is upper quartile at +6% of EBITDA (+$3.33 million).
Chuy’s Holdings Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Chuy’s Holdings Peer Group as well. In most years, Chuy’s Holdings was in the top quartile and second quartile. Currently, Chuy’s Holdings is at median at -10% of EBITDA (-$5.41 million).
Chuy’s Holdings Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Chuy’s Holdings Peer Group. In most years, Chuy’s Holdings was in the second quartile and top quartile. Currently, Chuy’s Holdings is slightly above median at -51% of EBITDA (-$27.73 million).
Chuy’s Holdings Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Chuy’s Holdings Peer Group. In most years, Chuy’s Holdings was in the third quartile and top quartile. Currently, Chuy’s Holdings is below median at -16% of EBITDA (-$8.94 million).
Chuy’s Holdings Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Chuy’s Holdings Peer Group. In most years, Chuy’s Holdings was in the second quartile and third quartile. Currently, Chuy’s Holdings is lower quartile at -48% of EBITDA (-$26.22 million).
Chuy’s Holdings Change in Cash, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Chuy’s Holdings Peer Group. In most years, Chuy’s Holdings was in the top quartile and lower quartile. Currently, Chuy’s Holdings is lower quartile at -19% of EBITDA (-$10.25 million).
Chuy’s Holdings Cash, %Revenue has enjoyed a strong overall uptrend over the period. This improvement was accompanied by stability for the Chuy’s Holdings Peer Group. (Since 2020 Cash, %Revenue has experienced a very sharp decline.) In most years, Chuy’s Holdings was in the top quartile and second quartile. Currently, Chuy’s Holdings is at the upper quartile at +15%.
PROFITABILITY
Chuy’s Holdings return on equity has eroded very significantly since 2014. The current level of 12.6% is 1.30X the low for the period and is -17.7% from the high.
This very significant erosion was due to very strong negative trend in pretax operating return offset by strong positive trend in non-operating factors.
The productivity of Chuy’s Holdings assets declined over the full period 2014-2023: asset turnover has suffered a very strong overall downtrend even as it experienced a very sharp recovery after the 2020 low.
Chuy’s Holdings pretax margin experienced a volatile overall downtrend over the period 2014-2023.
Non-operating factors (income taxes and financial leverage) had a significant positive influence on return on equity.
Chuy’s Holdings return on equity is slightly above median (12.6%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is slightly below median (7.7%) reflecting asset turnover that is lower quartile (0.97X) and above median pretax margin (8.0%).
Tax “keep” rate (income tax management) is above median (85.3%) resulting in after tax return on assets that is at median.
Financial leverage (leverage) is slightly below median (1.91X).
GROWTH RATES
Overall, Chuy’s Holdings growth rate has slowed considerably in recent years.
Chuy’s Holdings historical income statement growth and balance sheet growth have diverged. Revenue growth has fallen short of asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been 4.3% per year. (More recently it has been 13.4%.)
Total asset growth has been 10.6% per year. (More recently it has been 1.3%.)
Annual E.P.S. growth has been 8.8% per year.
Equity growth has been 6.9% per year.
Chuy’s Holdings consensus growth rate forecast (average of Wall Street analysts) is 15.0% — substantially above the average of the historical growth measures.
Relative to the Chuy’s Holdings Peer Group, Chuy’s Holdings historical growth measures are generally third quartile. Total asset growth (10.6%) has been substantially below median. E.P.S. growth (8.8%) has been at the lower quartile. Equity growth (6.9%) has been at the lower quartile. Revenue growth (4.3%) has been lower quartile.
In agreement with this pattern, consensus growth forecast (15.0%) is slightly above median.
PRICE HISTORY
Over the full time period, Chuy’s Holdings stock price performance has been variable and significantly below market. Between July, 2013 and May, 2024, Chuy’s Holdings stock price fell -18%; relative to the market, this was a -73% loss. Significant price moves during the period: 1) June, 2022 – July, 2023: +109%; 2) March, 2020 – April, 2021: +385%; 3) November, 2019 – March, 2020: -65%; and 4) March, 2014 – December, 2014: -54%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -15.5% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through April, 2024 of -15.5% is substantially below median relative to Chuy’s Holdings Inc Peer Group.
Current 5-year total return performance of 8.2% is slightly below median relative to the S&P 500 Composite.
Through April, 2024, with slightly below median current 5-year total return of 8.2% relative to S&P 500 Composite, Chuy’s Holdings total return performance is slightly below median relative to Chuy’s Holdings Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, CHUY’s overall valuation is low. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is slightly below median. Ratio of enterprise value/assets is slightly below median. Price/earnings ratio is near the lower quartile. Price/equity ratio is near the lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Relative to Chuy’s Holdings Peer Group, CHUY’s overall valuation is low. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is at median. Ratio of enterprise value/revenue is slightly below median. Ratio of enterprise value/assets is below median. Price/equity ratio is at the lower quartile. The lowest factor, the price/earnings ratio, is lower quartile.
Chuy’s Holdings has a minor value gap compared to the median valuation. For CHUY to rise to median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.49X to 1.54X. If CHUY’s ratio of enterprise value/revenue were to rise to 1.54X, its stock price would be lower by $1 to $30.
For CHUY to hit lower quartile valuation relative to the Chuy’s Holdings Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 1.49X to 0.72X. If CHUY’s ratio of enterprise value/revenue were to fall to 0.72X, its stock price would decline by $-20 from the current level of $29.
VALUE TARGETS
With future capital returns forecasted to exceed the cost of capital, CHUY is expected to continue to be a Value Builder.
Chuy’s Holdings current Price Target of $31 represents a +8% change from the current price of $28.95.
This moderately low appreciation potential results in an appreciation score of 36 (64% of the universe has greater appreciation potential.)
Reinforcing this moderately low Appreciation Score of 36, the low Power Rating of 26 contributes to an Value Trend Rating of F.
Chuy’s Holdings current Price Target is $31 (+4% from the 2023 Target of $30 and +8% from the 05/02/24 price of $28.95). This plateau in the Target is the result of a +2% increase in the equity base and a +2% increase in the price/equity multiple. The forecasted increase in cost of equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a large negative impact as well. More than offsetting these Drivers, the forecasted increase in return on equity has a very large positive impact.
PTR’s return on equity forecast is 14.2% — above our recent forecasts. Forecasted return on equity exhibited a modest, erratic decline between 2015 and 2023. The current forecast is well above the 2020 low of 6%.
PTR’s growth forecast is 5.0% — below our recent forecasts. Forecasted growth suffered a dramatic, erratic decline between 2018 and 2023. The current forecast is well below the 2018 peak of 14%.
PTR’s cost of equity forecast is 9.3% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is above the 2015 low of 5.5%.
At Chuy’s Holdings current price of $28.95, investors are placing a positive value of $3 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 9.0% per year, and a return on equity of 10.2% versus a cost of equity of 7.4%.
PTR’s 2025 Price Target of $31 is based on these forecasts and reflects an estimated value of existing assets of $26 and a value of future investments of $5.
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