Reporter's Notebook
How will investors receive Fogo de Chão?

How will investors receive Fogo de Chão?

This post is part of the Reporter’s Notebook blog.

Brazilian steakhouse chain Fogo de Chão is expected to go public this week, which would make it the 11th restaurant chain to go public over the past two years, including the fourth this year after Friday’s debut of Wingstop.

It’s certainly a good time to be doing so. The 10 previous IPOs over the past two years have seen their prices have increased 68 percent, on average, according to Nation’s Restaurant News calculations.

Wingstop on Friday increased 61 percent. And four restaurant companies have doubled in value on their IPOs over those two years. Investors are, in short, still interested in restaurant stocks.

At the same time, Fogo has one thing working against it: wait staff.

Only one casual dining chain has gone public over that two-year period — last year’s debut of Dave & Buster’s. That stock only went up 7.5 percent on its debut. Indeed, over the past four years, casual dining brands have had average first-day increases of 14 percent.

In other words, investors are paying close attention to a company’s service model when it goes public. Compare the casual dining IPO percentage, for instance, to that of the six fast-casual chains that have gone public over the past two years: 98.2 percent.

Of course, as we’ve said before, first-day performance only matters so much, and an overheated IPO can generate a backlash that hurts the company’s stock in the long run and damages its owners’ ability to exit their investment — especially if that company struggles in terms of sales.

Of the four chains that doubled on their debut over the past two years, only one, Shake Shack, is currently trading above its price at closing on the first day.

Meanwhile, investors have found value in that casual dining concept. Dave & Buster’s, after its modest first-day increase, kept going up as it provided earnings surprises and investors got to know the chain. Its stock soared, and is up 112 percent since its first day of trading.

All that said, Fogo could probably expect a better reception. The chain is upscale, and specializes in steak — higher-end steakhouses have performed well of late.

Because it’s a Brazilian steakhouse, it’s also unique to the public markets. The chain also gets super-high margins off of high volumes: Its average unit volumes are $8 million, and their margins are 32.5 percent.

Indeed, it’s already been labeled “the next hot food IPO” by at least one publication.

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