FAT - FAT Brands: Too Many Risks To Take A Bite
2024-04-05 14:46:26 ET
Summary
- FAT Brands' rapid acquisitions led to impressive revenue growth but high debt.
- The company's top-line growth has slowed, margins have weakened, and the company has yet to achieve profitability.
- A tempting dividend yield masks risks like a negative payout ratio and the undisclosed results of the SEC investigation.
In 2021, FAT Brands Inc. ( FAT ) adopted an aggressive growth strategy, majorly expanding its brand portfolio through rapid acquisitions. This was compelling, as revenue grew by a three-year CAGR of 198.20%. However, in my previous article , I downgraded my rating to hold because acquisitions were funded by debt with variable interest rates, which ballooned interest expenses in the 2023 economic environment. In its FY2023 financial results , top-line growth has slowed to 17.98% YoY, margins have weakened, and the company has yet to produce profits. Its cash position has improved slightly, although net debt exceeds one billion dollars. One of the incentives for potential investors is the company's generous quarterly FWD dividend yield of 7.54%. However, this is at a risky negative payout ratio. Due to low cash, high debts, a slowdown in top-line growth results, and uncertainty regarding an SEC investigation connected to Andrew Wiederhorn and his family company, which remains a controlling shareholder of FAT Brands with 55.5% voting power, I maintain a stay-cautious hold approach to this stock. ...
FAT Brands: Too Many Risks To Take A Bite