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buffalonate (94.47)

The Fastest Growing Small Retail Chains

Recs

7

May 18, 2011 – Comments (10) | RELATED TICKERS: CMG , BWLD , ULTA

I read Peter Lynch's One Up on Wallstreet several years ago and started looking for the highly successful regional chains that he was a fan of investing in.  He believed that small successful chains had a proven blueprint for success and would grow earnings much faster than the larger chains because they had more room to expand.  He also believed that the correct way to value a stock was that the p/e ratio should equal the earnings growth rate.  I invested in 3 at the time that I thought fit the profitle and they were Buffalo Wild Wings, Joseph S Bank, and First Cash Financial Services.  I am up over 140% on all three of them since then.  Since this strategy was so successful for me I recently started looking for more chains to invest in.  I am also going to show the percentage that their earnings have grown from 2006 to 2010.  Here is what I found. 

                                      p/e          earnings growth rate 2011   earnings growth from 2006 to 2010

Buffalo Wild Wings            26                     42%                                             235%

Joseph S Bank                 18                     21%                                             100%

First Cash Financial          17.7                   52%                                             560%

BJ's Restaurant                53                     56%                                              238%

Fossil                              25.5                  55%                                              330%

PF Chang's China Bistro   18                     21%                                              80%

Panera Bread                   31.8                  24%                                              90%

Ulta Salon                        48                    49%                                               900%

Rue 21                             25                     41%                                              385%

Ross Stores                     17                     27%                                              230%

Texas Roadhouse             20                     10%                                              70%

Chipotle Mexican Grill        47                     22.7%                                           431%

Lumber Liquidators           27                     -17%                                             100%

I wish I was smart enough to find these companies years ago.  I own most of these and think they are a good value except Panera, Texas Roadhouse, and Chipotle Mexican Grill.  I am hoping there is a big enough pullback in these stocks that it makes sense to buy them.  Chipotle's and Texas Roadhouse's earnings were hurt last quarter by inflation.  Lumber Liquidators still hasn't recovered from the recession and is having trouble with its new inventory management system.  I hope this was helpful.  If you know any other good small retail chains ideas let me know.  Hope this is helpful.  Most of these were featured on Forbes Magazine's list of most successful small companies. 

10 Comments – Post Your Own

#1) On May 18, 2011 at 11:27 PM, buffalonate (94.47) wrote:

I was wrong on the earning growth % of First Cash Financial from 2006 to 2010.  It should be 84%. 

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#2) On May 18, 2011 at 11:57 PM, buffalonate (94.47) wrote:

I should mention that the Texas Roadhouse CEO says they mothballed their expansion plans during the recession and that they have just recently started expanding again.

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#3) On May 19, 2011 at 2:20 AM, ikkyu2 (99.18) wrote:

Is Ross not fairly saturated?  They've been around forever.

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#4) On May 19, 2011 at 9:11 AM, buffalonate (94.47) wrote:

Ross does have 1000 stores but they are highly successful and are only in 27 states so they definitely still have room to grow. 

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#5) On May 19, 2011 at 9:47 AM, buffalonate (94.47) wrote:

I just found True Religion.  It is a premium denim retailer with 70 stores.  It has grown earnings 80% from 2006 to 2010.

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#6) On May 19, 2011 at 10:46 AM, tekennedy (72.48) wrote:

I'm a little wary about Ross stores. They do have a strong growth rate and should be able to expand for a number of years but I believe their current margins are unsustainable. Their op margin has risen significantly since prerecession levels and will likely decline with unemployment levels. I love it longterm but I believe it will be flat to declining over the next 3-5 years.

Check out RMCF, THI and the dunkin donuts IPO this summer. DRI also has the ability to expand its smaller chains.

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#7) On May 19, 2011 at 2:06 PM, lemoneater (75.21) wrote:

I have Ingles grocery (IMKTA) which is the store I buy my groceries at in SC. It has room for growth and a generous dividend of almost 5%.

I also have Alon Holdings (BSI) which is an Israeli grocery chain. With a 30% dividend it must be risky. The price is rather volatile but I only have a small position.

 

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#8) On May 22, 2011 at 6:39 PM, nshamapant (< 20) wrote:

hey, Im a little bit new to this, so I was wondering, where do you find the earnings growth rate for 2011 for a given company?

 

Thanks,

Nshamapant 

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#9) On May 22, 2011 at 9:25 PM, buffalonate (94.47) wrote:

I use Yahoo Finance.  Insert your ticker and go to analyst estimates.  www.dailyfinance.com has better numbers.  I just found that one the other day.  Yahoo Finance doesn't update their numbers as often as they should.  Motley Fool has it too just type the ticker in and then hit earnings/growth rates.  You are better off reading the earnings release for a company and hearing the CEO say his expectations for the future.  That way you know the numbers are up to date.   

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#10) On May 22, 2011 at 11:31 PM, nshamapant (< 20) wrote:

awesome, thanks

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