This Restaurant Stock Tends to Soar After Earnings

Fiesta Restaurant Group reports earnings Thursday afternoon

May 10, 2021 at 10:44 AM
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Fiesta Restaurant Group, Inc. (NASDAQ:FRGI) is a Dallas-based restaurant chain. that owns, operates and franchises the Pollo Tropical and Taco Cabana brands. Fiesta Restaurant Group will report earnings on Thursday, May 13 after the close. In 2020, Fiesta Restaurant Group outperformed earnings expectations on three of its four quarterly earnings reports. But the post-earnings reactions is what we want to unpack today.

In the last eight quarters, only one post-earnings reaction swung to the negative. This includes post-earnings bull gaps of 37.7% and 31.1% in May and August 2020, respectively. Overall, FRGI averages a post-earnings move of 11.3% in the last eight quarters. This time around, the options market is pricing in a larger-than-usual post earnings move of 19.4%. 

On the charts, FRGI is a ways off its March 9 annual high of $18.52. However, the 15.3% deficit the last three months has so far been contained by the shares' 160-day moving average. Year-over-year, the stock remains up 78.5%. 

From a fundamental point of view, Fiesta Restaurant Group shows plenty of inconsistencies all around. Aside from having its revenues fall 16% in fiscal 2020, largely because of the COVID-19 pandemic, sales also decreased by 4% in 2019 before the pandemic took its toll. In addition, Fiesta Restaurant Group has only reported a profit once in the last four fiscal years. The last time FRGI had a positive net income was in fiscal 2018, when the company reported $7.78 million. Then, the following year, FRGI reported a net loss of $84.3 million, which was roughly a $92 million decline in net income. However, in fiscal 2020, Fiesta Restaurant Group increased its bottom line by $74 million, taking net losses to $10.2 million as the company entered 2021.

In general, Fiesta Restaurant Group has yet to prove that it can expand its business and generate a profit on a consistent basis. At the moment, the risk involved with investing in FRGI seems to heavily outweigh the reward potential, especially after the huge upward move Fiesta Restaurant Group stock has already seen over the past year.

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