Jack in the Box’s Valuation Multiples: Peer Group Comparison



Valuation multiples

Now that we’ve discussed Jack in the Box’s (JACK) business model, revenue, sources of revenue, and financial ratios, it’s time to discuss the company’s valuation multiples, to see where it is trading compared with its peers. Restaurant companies can be assessed based on trading comparables and discounted cash flow methods. Under trading comparables, the PE (price-to-earnings) and EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratios are generally used. Due to the relatively stable and non-capital intensive nature of the restaurant business, the PE ratio is used instead of the EV-to-EBITDA ratio.

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Importance of the PE ratio

The PE ratio gives information about how much you will have to pay for one unit of earnings. A higher PE ratio indicates that investors expect a company’s earnings to be higher than those of companies with lower PE ratios.

Jack in the Box’s PE ratio

From December 2010 to December 2015, Jack in the Box’s PE ratio varied between 11.2x to 32.4x. As of December 18, 2015, its PE ratio is 20.8x, having fallen significantly from its peak of 32.4x in March 2015.

Peer comparison: PE ratio

As of December 18, 2015, McDonald’s (MCD) PE ratio was 22.4x, Chipotle Mexican Grill’s (CMG) was 35.2x, The Wendy’s Company’s (WEN) was 28.5x, and Panera Bread’s (PNRA) was 30.7x. Jack in the Box had the lowest PE ratio among its competitors.

Due to the relatively predictable nature of the restaurant business, you could also use a discounted cash flow model to assess the intrinsic value of a company. However, investors should keep in mind that these multiples must be adjusted for factors such as a company’s size, growth rate, risk, and profitability.

You can get exposure to Jack in the Box (JACK) stock by investing in the Direxion All Cap Insider Sentiment ETF (KNOW), which has invested 1.4% of its portfolio in Jack in the Box.


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