While the broader market has struggled with the S&P 500 down 1.7% since October 2024, Yum! Brands has surged ahead as its stock price has climbed by 13.6% to $158.53 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy YUM? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Does Yum! Brands Spark Debate?
Spun off as an independent company from PepsiCo, Yum! Brands (NYSE: YUM) is a multinational corporation that owns KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill.
Two Things to Like:
1. Restaurant Growth Signals an Offensive Strategy
The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.
Yum! Brands sported 61,346 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 5.2% annual growth, among the fastest in the restaurant sector. Additionally, one dynamic making expansion more seamless is the company’s franchise model, where franchisees are primarily responsible for opening new restaurants while Yum! Brands provides support.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Yum! Brands has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the restaurant sector, averaging 18.8% over the last two years.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Yum! Brands’s 6.2% annualized revenue growth over the last five years was mediocre. This wasn’t a great result compared to the rest of the restaurant sector, but there are still things to like about Yum! Brands. 
Final Judgment
Yum! Brands’s merits more than compensate for its flaws, and with its shares beating the market recently, the stock trades at 26.7× forward price-to-earnings (or $158.53 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More Than Yum! Brands
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