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BKC - Burger King
BKC, in my opinion is a short. It does not appear to be greatly overvalued but it is certainly not a bargain and it is not a growth story. Revenues have been flat for a few years and the dividend is minuscule, currently at 1.4%. Thus leaving little reason for investors of any stripe much incentive to buy the stock. Interestingly, it is widely held by institutions. In my opinion, if there is an unexpected bad quarter the institutional sponsorship will plummet. It is true that the brand name has some value. Is it worth the current $2.4 billion? I don't know but I doubt it. It seems to me that the brand name has been getting tarnished for many years now. I remember when I was a child the food quality being good for a fast food chain. This is not the case anymore. It is subpar these days even for fast food. This opinion is shared by many people I know. Additionally, I am bullish on live cattle for the long-term as well as near-term. If I am correct and live cattle prices increase that will translate into higher input costs thus eventually putting a crimp on earnings even if revenues remain flat.
From a TA perspective we have a large triangle that has formed for about a year and a half. The share price has broken below it. This is very bearish. More near-term, the shares do appear to be oversold so the timing of selling these shares might better in a few days or weeks. My feeling is that the price will temporarily come back into the triangle and then decline again.
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Interesting point about the food quality. A recent trend seems to be that the strongest restaurants are the upscale fast food ones -- places such as Chipotle and Panera, where customers can get a lot higher quality at a slightly higher price point. Competition from upscale burger places such as Five Guys could increase too.
Re the TA, any suggestion as far as an entry point?
Dave, I agree with the increased competition from the more upscale fast food restaurants. There are quite a few of them that have popped up in recent years. Most are regional but collectively they should continue to put pressure on the more established chains.
About the TA, it's my assumption that the broad market will rally at least a bit near-term. If it does, I'd like to see how BKC behaves. If it goes up with it I would expect a move up to the downward trendline that connects the last 3 peaks.(This would probably put it back inside the triangle.) A 30 day EMA holds that line pretty well right now. I would look to short as the price approaches this line and stalls. A close above the line or the 30 day would be my mental stop. It's possible that BKC goes more sideways than up and gets to the area where the short-term downward trendline and the lower line of the trianlge interesect. That would be a good scenario for entry. A close above the most recent high of 19.34 would make me re-evaluate shorting at this time.