RUTH - This Beaten Down Stock Could Serve Up Prime Returns
Restaurant stocks are not the market's favorites right now as investors fear that rising inflation and a potential recession could hurt demand as customers skip going out to eat in order to save money. But I think a company at the top of the food chain in terms of fine dining like Ruth's Hospitality Group (NASDAQ: RUTH) may be able to fare better than the market is giving it credit for. Here's why I think that Ruth's is well-positioned going forward.
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Ruth's Hospitality Group operates fine dining steakhouses under the name Ruth's Chris Steak House. It has 150 locations, with about half of these company-owned and the other half franchised. I like Ruth Chris' franchise-focused approach because a franchise-based business model tends to be asset-light and boast high margins. This is because most of the fixed costs are borne by the franchise owner. Ruth's collects an upfront franchise fee plus ongoing royalty payments based on about 5% of revenue. Using investors and franchisees to fund growth with new locations also allows companies like Ruth's to expand rapidly.
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This Beaten Down Stock Could Serve Up Prime Returns