Sunday, December 10, 2023
Hometalking numbersThis hamburger stand is eating McDonald's lunch

This hamburger stand is eating McDonald’s lunch

Sonic burgers may double your waistline, but shares of the company have also doubled in the past year.

In the past twelve months, Sonic's stock returned nearly 90%, helped in part by a $7.5 million stock repurchase program. By comparison, burger giant McDonald's saw just a 10% in 2013.

Sonic is growing by several measures besides its stock price. The company's revenues may have gone up only 0.5% to $126.7 million in the most recent quarter compared to last year, but profits were up 34.4% as the bottom line increased from $6.1 million to $8.2 million. That's in part because operating margins went from 13.7% to 14.5% in the most recent quarter.

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Meanwhile, Sonic is also looking to add between 40 and 50 new drive-ins to its total of 3,517 already in place this year. CNBC contributor Gina Sanchez, founder of Chantico Global, is bullish on Sonic's prospects.

"I think this is a really interesting stock because Sonic is making the transition from being a regional powerhouse to a national brand," says Sanchez. "They're clearly expanding and that expansion is just beginning."

Sanchez notes the Oklahoma-based company's planned growth in the Golden State as one such an example.

"They've signed with franchisees here in Southern California to [open] new Sonics in southern California," says Sanchez. "That expansion is probably going to go from 15 stores to 300. That's a massive expansion. I would say we're at the beginning of this. This is a really interesting time to be looking at Sonic."

(See: CNBC's Restaurants coverage)

On the charts, Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, also thinks investors should continue to be long Sonic based on the technicals.

"Upside for Sonic shares," says Ross. "I'm still a buyer here."

The key to Ross' thesis is the stock relationship with its 50-day moving average.

"This stock has been on a phenomenal run," says Ross. "In 2013, you did not get a single close below the 50-day moving average."

Ross also notes that the shares remained within a clearly-defined uptrend channel. Recently, the stock broke below that trend channel and its 50-day moving average. However, Ross believes it's a false breakdown of the trend.

"I think that's your opportunity to buy," says Ross. "The false break leads to a fast move higher."

Ross sees the stock targeting $26 per share based on its price movements over the last five years. "That $26 number creates a very inviting upside target for a retest of the previous old high," says Ross. "I'd still be a buyer here."

To see the rest of Ross' charts and Sanchez's fundamental analysis, watch the video above.

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