Few publicly traded restaurant chains have had as good a year as has Popeyes Louisiana Kitchen. With sales flourishing and its market share increasing, the Atlanta-based chicken chain's stock is up by more than a third this year.
But that hasn't kept Popeyes from being the latest in a long string of restaurant chains that have attracted activist investors. Earlier this week, the Los Angeles-based investment firm Red Mountain Capital Partners filed documents with the SEC saying it has an activist investment in Popeyes.
Red Mountain bought up 1.18 million shares, mostly in October and November, paying $52 million. It owns about 5.1 percent of the chain's stock.
According to the filing, Red Mountain said it has "engaged, and expects to engage" in dialogue with Popeyes management about the company's "strategic direction, capital allocation, opportunities for cost savings, optimal capital structure, debt financing and timing and magnitude of share repurchases and Red Mountain's expectation that management will pursue appropriate measures to enhance shareholder value."
Popeyes has bought 709,700 shares of its own stock through the third quarter for about $30 million and won't buy any more this year. It's possible that Red Mountain could push the company to buy more of its own shares.
According to the firm's website, Red Mountain says it invests in small cap public companies, and works with management teams to increase market value. The company's website says it works with management "on a collaborative basis to promote strategic, financial, operational and ESG initiatives that enhance shareholder value." (A call to Red Mountain has not yet been returned.)
It is no stranger to the restaurant investment world. The investment company owned 1.6 million shares in Bravo Brio Restaurant Group through the end of the third quarter. And Red Mountain partners have served on the boards at several companies, like health products company Nature's Sunshine Products and Air Transport Services Group.
Activist investors typically get involved in chains perceived as undervalued — Darden Restaurants, Bob Evans Farms, Cracker Barrel, Red Robin, Famous Dave's and BJ's Restaurants, among others, attracted interest from activists in recent years as their stock prices were down. Yet Popeyes is trading at a strong valuation. Its trailing price-to-earnings ratio is nearly 34, which is higher than, say, Buffalo Wild Wings.