Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

Can Jack in the Box Make Money in the Burger Wars?

Jack in the Box Inc. (NASDAQ: JACK) has the most to lose in America’s endless Burger Wars.

Jack in the Box operated 137 company-owned restaurants and 2,106 franchised fast food outlets in 2019, Statista estimates. For non-Californians, Jack in the Box is an old-school burger chain that operates 2,200 restaurants.

Jack in the Box’s main market is the West Coast, but it operates outlets as far afield as Guam, Cincinnati, Charlotte in North Carolina, and Nashville. However, Jack in the Box’s focus is still California where it operates 943 restaurants.

Can Jack in the Box Survive?

Jack in the Box’s problem is an incredible amount of competition. Besides the giants McDonald’s (NYSE: MCD) and Burger King, Jack in the Box has to contend with a variety of upstarts.

Some Jack in the Box competitors include; In-n-Out Burger, Shake Shack (NYSE: SHAK), Wendy’s Co. (NASDAQ: WEN), Carl’s Jr., Hardee’s, A&W, Robin (NASDAQ: RRGB), Berkshire Hathaway’s Dairy Queen, Five Guys, and many regional outlets. Consequently, there are now two or three burger stands on many American street corners.

In fact, Burgerweb claimed 75% of U.S. restaurants were burger joints in 2015 In addition, Burgerweb claimed hamburgers account for 71% of all U.S. Beef consumption and 60% of U.S. sandwhich sales in 2015. Moreover, Burgerweb estimates Americans spent around $50 billion hamburgers each year in 2015.

Therefore, the market is huge and growing. Cynics, however, will ask how many burger chains can America support? Even with the variety of “quality burgers” and all the McDonald’s haters out there.

Is Jack In the Box Making Money?

Conversely, the demand for burgers and Jack In the Box’s revenues are growing.

For instance, Jack in the Box reported a revenue growth rate of 5.81% in the quarter ending on 31 December 2019. Impressively, Stockrow gave Jack in the Box a 24.66% revenue growth rate for the quarter ending on 30 September 2019.

The amount of money you can make from burgers is small, however. For instance, Jack in the Box reported a quarterly gross profit of $104.06 million on revenues of $307.67 million on 31 December 2019.

As a result, Jack in the Box reported an operating income of $69.96 million and a net common income of $7.9 million for the last quarter. Thus, Jack in the Box makes small amounts of money from burgers.

How Much Money is Jack in the Box Making?

Importantly, Jack in the Box is generating some cash from its business. For instance, Jack in the Box reported an operating cash flow of $22.69 million, an ending cash flow of $38.29 million, and an investing cash flow of $32.36 million for the last quarter of 2019.

As a result Jack in the Box reported $38.29 million in cash and short-term investments on 31 December 2019. That number was down from $151.56 million on 30 September 2019.

Therefore, I think Jack in the Box (NASDAQ: JACK) is a poor investment because it has little cash and a low margin of safety. Consequently, I think Jack in the Box could run out of money and collapse.

To elaborate, I believe Jack in the Box could run out of money after one bad quarter. This could force Jack in the Box’s management to sell the company to a private equity company.

Could Jack in the Box and other Fast-Food Chains make money from Coronavirus?

Disturbingly, Jack in the Box and other fast food chains could make money from the Coronavirus hysteria.

To explain, many people are afraid to go to public places; such as sit-down restaurants, because of Coronavirus. Instead, those people could go to the drive-thru or use a delivery app such as GrubHub (NYSE: GRUB) or DoorDash.

Hungry paranoids will use the drive-thru or the delivery app to avoid human contact. The paranoid could avoid restaurants the Centers for Disease Control and Prevention (CDC) recommends people stay six feet away from potential COVID-19 carriers, Business Insider claims. To explain, COVID-19 is another name for the Coronavirus. In addition, the CDC advises everybody to avoid close contact with people with flu-like symptoms.

Thus, fast-food outlets such as Jack in the Box and GrubHub could make money from coronavirus. However, I think any boost of business Jack in the Box receives from COVID-19 will fade as the media-driven hysteria dies down.

Is Jack in the Box a Good Dividend Stock?

I think Mr. Market overpriced Jack in the Box (NASDAQ: JACK) at $47.11 on 11 March 2020.

I believe that price is too high because of Jack in the Box’s tiny cash reverse. To clarify, I think Jack in the Box stock is too expensive because of its low margin of safety.

Conversely, I think Jack in the Box pays a good dividend. For instance, Jack in the Box paid a 40₵ dividend on 2 March 2020. Thus, you can make money from Jack in the Box stock.

Overall, Jack in the Box shares offered a dividend yield of 2.57%, an annualized payout of $1.60, and a payout ratio of 36.13% on 9 March 2020. Unfortunately, reports, Jack in the Box’s dividend did not grow last year.  

In the final analysis, I do not consider Jack in the Box (NASDAQ: JACK) a value investment because of its price. However, Jack in the Box could be a value buy if its price falls.