I don’t think the market quite knows how to value this business, or it is simply unaware of it because of the recent IPO.
It is a wonderful restaurant Chain in China (my personal favourite), growing rapidly, highly profitable, and still opening stores at a remarkable pace.
And you can buy it for roughly 6x forward earnings.
Revenue grew more than 20% last year, while adjusted profit grew around 40%.
The company has no meaningful financial debt and carries a substantial cash position.
Management is still expanding the store base aggressively, giving the business a long runway if unit economics hold.
Yet the stock trades at a valuation more appropriate for a business in structural decline.
And you are being paid handsomely while you wait.
Management has formally committed to distributing at least 50% of annual earnings to shareholders.
At today’s price, that implies an ordinary dividend yield of roughly 7-8%, before any special dividends.
Here’s the simple math.
If you buy a growing business on a 15-16% earnings yield, receive 7-8% of your purchase price back each year in dividends, and earnings continue compounding at even a fraction of their recent rate, the return potential becomes difficult to ignore.
But if the company can prove that its new stores remain economically attractive, and that mature-store performance is stabilising, I struggle to see why this should remain a 6x earnings business.
It is profitable.
It is growing.
It has a large runway for expansion.
It has lots of cash. No bank borrowings.
It returns capital.
And it may be trading at less than half the multiple investors would ordinarily pay for those characteristics.
My favourite part about this restaurant is that it’s my personal favourite in China. I have been to multiple branches- conducted on the ground due-diligence, and will always return.
The company I am pitching today is…