Fiesta Restaurant Group, Inc. (NASDAQ:FRGI)

CAPS Rating: 3 out of 5

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Member Avatar CMFCochrane (37.46) Submitted: 11/3/2015 10:45:44 PM : Outperform Start Price: $36.18 FRGI Score: -9.47

Ugh, this is not even close to what I wish it to be, but I have a feeling if I don’t post this now I’m not going to have time to research much more in the coming weeks. The amount of information in this post is not even close to the work I put into my prior reports. But it is what I have at the moment.

I “discovered” this investment opportunity via TMFPennywise, who started a public board for this company a couple of months ago.

Fiesta Restaurant Group

Fiesta Restaurant Group is the parent corporation to two regionally-based restaurant chains:

1) Pollo Tropical, an ethnic, Caribbean-inspired fast casual chain primarily based in Florida, namely in South Florida and around the Orlando area. Of these, there are 149 owned and operated by the company and 35 franchised. Comparable restaurant sales grew by 4.2% YoY as of the most recent quarter, but this was due to menu price increases. Restaurant traffic actually decreased in the most recent quarter by 1.0%. In the company’s most recent conference call, this decrease in traffic was blamed on heavy South Florida rain and restaurant cannibalization. The chain is expanding rapidly.

2) Taco Cabana, a fast casual Mexican chain primarily located in Texas. Comparable sales in Taco Cabanas rose 4.8% YoY as of the most recent quarter. Again, this was driven by price increases on their menu, as foot traffic slightly declined 0.4% which the company blamed on breakfast sales declines due to nation-wide egg shortages.

Revenue (in millions) Q1 Q2 Q3 Q4
2013 133.6 140.9 140.7 136.2
2014 145.4 154.2 155.3 156.2
2015 163.9 171.9 172.1

Earnings (per share) Q1 Q2 Q3 Q4
2013 0.20 0.21 0.21 0.20
2014 0.33 0.35 0.32 0.34
2015 0.39 0.42 0.33

Current (10/30/15, 2015 Q3 Earnings)

Revenue Growth (millions)
2014 Q3 TTM Revenue = 591.1
2015 Q3 TTM Revenue = 664.1
Year Over Year Revenue Growth = 12.3%

Earnings Growth (per share)
2014 Q3 TTM Earnings = 1.20
2015 Q3 TTM Earnings = 1.48
Year Over Year EPS Growth = 23.33%

P/E = (Check current price) = 35.36/1.48 = 23.89

1YPEG = 23.89/23.33 = 1.02

Expansion Plans

It seems Fiesta is really ramping up expansion plans:

Fiesta Restaurant Group plans to open up to four Taco Cabana restaurants next year and up to 40 of its sister chain, the Caribbean-themed Pollo Tropical, according to an SEC filing posted Thursday.

The Addison-based company has been growing fast this year, especially its Pollo Tropical chain.

Fiesta opened 14 company-owned Pollo Tropical restaurants in the third quarter of this year, including one on the Northeast Side and three others in Texas, according to the filing. In August, the company revealed plans for another on the Northeast Side.


From their last quarterly report, the company stated:

As of September 27, 2015, Fiesta had 149 owned and operated Pollo Tropical restaurants and 163 owned and operated Taco Cabana restaurants (including one Cabana Grill® restaurant) and 35 franchised Pollo Tropical restaurants...


If this is true, there are currently 184 Pollo Tropical locations (149 owned + 35 franchises). If they open up 40 more Pollo Tropical locations, that would be an increase of 22%. That either spells explosive growth or over-expansion trouble.


There is obviously lots of potential here. Two things stick out above the rest.

1) The company is relatively small, with lots of room for the opening of new locations. These new locations don’t even have to expand outside of their core geographic bases. There is still plenty of more room in Texas and Florida for more locations. This should keep marketing costs down as they expand.
2) Macro trend tailwinds. Populations in Florida and Texas are growing. There is growing demand for ethnic foods.


I do worry they might be growing too fast. In the last conference call they blamed declining restaurant traffic on heavy South Florida rain and cannibalization of restaurants from new locations.

I live in South Florida. Rain was heavy this past quarter down here but...I just don't buy this. We always get thunder storms and we were never in serious danger of a hurricane striking shore. I don't study restaurants, I've never invested in one, so I don't know how much regular rain would affect a restaurant's traffic, but this just doesn't seem right to me.

I am much more concerned about over-expansion. Again, I don’t know much about restaurants, but 22% increase in store locations for one chain seems like a lot. Should we expect more cannibalization of sales?

For the last quarter, revenue growth was basically steady but earnings growth declined significantly.

Valuation and Stock Price

Because of declining earnings’ growth, the stock price has been hammered this year, down almost 50% from its highs. A few months ago, I would have argued the valuation was too high, that the stock was priced for perfection. That is not necessarily the case right now. In fact, I think you could easily argue that the market has overreacted.

I wouldn’t say it’s a great valuation now, but I do believe it’s fair. Compare this to Zoe’s, another smaller but fast growing restaurant chain. Zoe’s has microscopic earnings and a sky-high P/E. With a P/E of 24 and a 1YPEG of basically 1, Fiesta seems reasonably priced for a chain that has rapid expansion plans.

Personal Review

I’ve never been to a Taco Cabana, but as a South Florida resident I’ve been to a Pollo Tropical several times. I usually get their wraps, which are quite tasty. Their Tropichop bowls are also pretty good. You start with a base of chicken or pork (I think there’s vegetarian ones too?) and then add rice, beans and an assortment of different toppings and sauces. They’re quite filling too.

I don’t go there often, but when I do I usually come away with a favorable impression. Unfortunately, the location closest to me isn’t exactly in the best neighborhood, but it is always quite crowded. They seem to do especially well in culturally-diverse, multicultural neighborhoods which, in South Florida, are ubiquitous as palm trees and humidity.

It’s kind of the place you go when you want something different. Instead of fries, you can opt for fried yucca or sweet plantains. Instead of traditional Buffalo wings, you can wings with more tropical glazes.


Member Avatar shalumov (96.16) Submitted: 3/4/2015 2:44:31 PM : Outperform Start Price: $65.87 FRGI Score: -49.79

From TMFDeej


Member Avatar mantazen (< 20) Submitted: 1/12/2015 7:58:36 PM : Outperform Start Price: $58.89 FRGI Score: -46.85

Tropico is the future of the enterprise. 2.1 million dollars in sales per location is among the highest in the industry.


Member Avatar swedenclunk (37.41) Submitted: 12/25/2014 6:17:50 PM : Outperform Start Price: $57.29 FRGI Score: -43.26

Looks interesting


Member Avatar mccarrara (37.14) Submitted: 12/2/2014 12:37:22 PM : Outperform Start Price: $56.89 FRGI Score: -43.70

Well executed growth plan, good cheap food.


Member Avatar benyboy (< 20) Submitted: 12/1/2014 6:53:18 PM : Outperform Start Price: $56.34 FRGI Score: -43.52

Jim Cramer Mad money


Member Avatar trooper740 (< 20) Submitted: 11/22/2013 8:24:44 PM : Outperform Start Price: $32.01 FRGI Score: +0.58

Great concept !! Over 8,000 employees. Ranked strong buy !! Will outperform for years to come. Over %250 stock growth in 2013. They have over 150 stores. Maybe the next CMG !!


Member Avatar jsilver123 (24.91) Submitted: 10/6/2013 12:00:03 AM : Outperform Start Price: $38.34 FRGI Score: -39.69

Great product and niche. lots of room to continue expanding


Member Avatar luremaster (23.02) Submitted: 8/10/2013 12:49:16 AM : Outperform Start Price: $34.43 FRGI Score: -29.32

better than average growth


Member Avatar CarlosDK (25.77) Submitted: 1/21/2013 7:53:01 PM : Underperform Start Price: $18.74 FRGI Score: -32.74

RSI +70


Member Avatar 2008Rehab (< 20) Submitted: 1/3/2013 10:28:58 AM : Outperform Start Price: $16.27 FRGI Score: +56.71

TexMex by people who know how to make a better taco.


Member Avatar TMFPennyWise (< 20) Submitted: 7/6/2012 4:11:14 AM : Outperform Start Price: $13.64 FRGI Score: +84.09

Spun off from Carroll's restaurant group in 2012, Fiesta features two kinds of fast food restaurants, Polo Tropical, with a Cuban Chicken menu, and Taco Cabana (both totaling about 250 restaurants). Most of the domestic restaurants are in Florida and Texas and the group's international presence is centered in Latin America. About half of the stores are franchised.

The new management team is focused on improving service, store cleanliness, and updating decor and improving branding and facilities. They have hired experts in supply chain economics to evaluate cost savings and are seeing immediate results from this hire. The Polo segment is well positioned in the 'healthy' fast food market with customer survey responses saying the Polo restaurants feature 'food you can feel good about eating' such as grilled chicken. The Polo group is seeing considerable same store increases in revenue. As the group works on expansion they are extending beyond 'latin centric' populations having completed research that reveals the menus have a wider appeal, identifying prime real estate in high traffic areas for new locations.

I think FRGI has great potential and we will see it outperform the market in the next couple of years.

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