Stock of the Week - El Pollo Loco (LOCO)

Highlight Fundamentals
El Pollo Loco has grown it’s restaurant sales eleven consecutive quarters including 7.2%, 6.5%, and 3.7% in Q1′ 14, Q4 ’13, and Q3 ’13, respectively. As a result revenues have increased from $273M to $294M from 2011 to 2012 and $294M to $315M from 2012 to 2013.

If you look closely at their financials they have not been able to churn a profit until recently. This is mainly due to the ‘Loss on early extinguishment of debt’ amounting to costs of $21.5M and $20.1M in 2013 and 2011 respectively. When El Pollo Loco refinanced their debt, it was replaced with senior secured credit facilities that carry longer maturities, but had lower interest rates. As a result of the refinancing, call premiums and write-off of deferred financing costs and accelerated accretion charges were incurred. Having taken this into account, El Pollo Loco would’ve had a net profit of approximately $5M and -$12M in FY 2013 and FY 2011 respectively. 

Highlight Technicals
From a technical perspective, from El Pollo Loco’s initial public offering at $15 it is without a doubt that it has doubled since IPO. Now the general public, myself included evidently did not have the change to buy it at $15. But it was at 18.48 on the first day. Honestly, that gap up on Monday after the first day of trading on Friday should have been a green light. If you had traded that gap up you would be up a significant amount.

Technically speaking, I always like to wait for a pullback to the 61.8% fib extension. Especially if its the first pullback. But, it looks like the stock is strong enough to only need to bounce at the 38.2% fib. For me personally, the first entry point was the gap up on the second day of trading. If I were to pick an entry point now, it would be after it clears $41.7. That way there is no resistance. Everyone holding at that point will have been in the green. There would be no sellers waiting to get out at break even. 

Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.