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About Jack in the Box
Two things.
First of all, Cactus Jack (also known as Jacques Bermon Webster II also known as Travis Scott) was at my university recently, and I was incredibly bummed because I am more of a Box Jack kind of guy myself.
Secondly, the main source of inspiration for this stock analysis article lies in the fact that I recently moved to a new apartment and, what do you know, I am proud to say that I am well within smelling distance of my neighborhood Jack in the Box.
But the buck doesn’t actually stop there, as I’ve indulged in some of the best that Jack in the Box had to offer in the past and boy was it just straight up terrible.
Look, I get it, fast-food isn’t exactly fine dining and the standards across any restaurant chain within the category are far from high, but this really further emphasizes the garbage-ness of Jack in the Box.
I’m sorry, but really, the fries are disgusto el barfo, the burgers are incredibly “mid,” as the kids say, and the prices are so darn high given what you get, it is sort of offensive if you ask me.
Oh, and the company’s stock price (NASDAQ: JACK) has also been much akin to its “hot” food items; on a cold streak, primarily with its shares down north of 20% over the last five years, not to mention that simply from a general consumer perspective, with respect to other fast-food operators and franchises such as McDonald’s and Burger King, Jack in the Box does not appear to be nearly as desirable or ubiquitous.
No, I am not trying to sound like a biased Jack in the Box hater, however, the views tell me that y’all like to get my opinion here and there and we are evidently standing on the cross street of Here Avenue and There Lane.
Thanks for visiting, come again.
Like the aforementioned fast-food chains, Jack in the Box operates both corporate-owned restaurants while also indulging in the franchise and development businesses, and for those that don’t know much about Jack in the Box coming into this stock analysis article, its menu is largely comprised of burgers, fries, chicken strips and tenders along with other items such as generic shakes and desserts and, weirdly enough, salads, oh, and the company also owns a less prominent Mexican fast-food chain by the name of Del Taco as well, purchasing the franchise a few years ago.
Now, it is my general opinion that given just how crowded and concentrated the fast-food industry has become, subpar generalists such as Jack in the Box are just hardly interesting in their own rights, as I am personally much more inherently interested in casual dining operators that focus on one or two menu items as their staples and the rest of the menu items trickle down from there, those usually being the less desired menu items, of course.
Examples of this include Wingstop and its narrow and rather intense focus on chicken wings, McDonald’s and the Big Mac, Burger King and the Whopper, and so on and so forth, and all I’m saying is there really doesn’t seem to be anything notably better or differentiated about Jack in the Box and its products, but I will concede that having Snoop Do-double-G as a spokesperson is a plus.
With all of this being said, a general pro of the fast-food sector is that it tends to be a bit more immune to recessionary pressures given that these operators tend to naturally be thought of as price and consumer cost safe havens, with combo and value meals that are already viewed as being relatively inexpensive, plus, let’s be honest, recession or not, many Americans would much rather spend a little more in driving up to a pick-up window and getting their dinner as opposed to mustering up the motivation to go to their more than likely busy grocery store, handpick some (hopefully) healthier food items and then have to prepare and cook them later that day.
Who knew one could be just so thoughtful regarding Jack in the Box?
Nevertheless, I’m about to get a whole lot more thoughtful as it relates to the company’s core finances so as to ultimately determine if this company’s stock (NASDAQ: JACK) is worth buying at a seemingly attractive current valley or if its like its cold, crusty (weird descriptor, but it’s true) and soggy french fries and not worth thinking about touching with a twenty-foot poll.
Jack’s stock financials
One of the perks of experiencing a gradual decline in stock price (if there are any to be had) is that one is inherently getting closer to a fair value price level, or in certain instances may even further surpass it towards the downside and can actually be viewed as all of the sudden being quite cheap or undervalued.
This seems to be the case with Jack in the Box’s stock, at least, as its present price-to-earnings (P/E) ratio is 10.26 within the context of it being commonly said that a price-to-earnings ratio of 20 insinuates that a stock is trading at exactly fair value or what it is worth paying for today given the sum of its parts and prospects.
There might just be an opportunity with Jack in the Box, however, merely basing an investment decision off of one metric alone, or a couple for that matter is nothing short of financially foolish and most certainly more effort must be put in to understand Jack and the Box a bit better from a financial lens.
In addition to its shares trading at historically depressed levels, Jack in the Box is a $1.2 billion company (according to its prevailing market capitalization), and the company issues an annual dividend to its shareholders in the amount of $1.76, indicating to a certain degree that the firm has some capabilities in extracting excess cash from its business operations.
With respect to the company’s balance sheet, Jack in the Box’s management team is responsible for maintaining and strategically deploying just a little over $3 billion in terms of total assets as well as $3.7 billion in terms of total liabilities, which isn’t an initial positive in the sense that this company does hold more obligations than options on its books, however, contextualizing these figures within the fast-food industry is quite important and paints a much less grim picture, as we have seen time and time again through other franchises and operators (Yum! Brands and Domino’s Pizza, as examples) have upside down balance sheets (that is, more total liabilities than total assets) due to all of the direct, indirect, explicit, implicit, fixed and variable costs that go into simply operating a single restaurant unit, and it is also important to emphasize that in many respects, these operators are really real estate companies that just so happen to also be in the business of selling burgers and fries across their expansive real estate portfolios, Jack in the Box itself maintaining somewhere in the neighborhood of 2,200 locations.
And the real estate business is predominantly a long-term play that frequently demands a considerable amount of patience and debt, and compared to others that operate in the space, Jack in the Box’s debt load isn’t nearly as large as the aforementioned companies, so comparably, all good on this front, but on an individual company level, we do hope to see Jack in the Box transform into a more asset-light business model within the next handful of years, which would more than likely result in a more appetizing and comforting balance sheet and capital structure.
When it comes to the company’s income statement, Jack’s revenues since 2019 have been trending rightward (but that’s just by virtue of time so who cares) and upward (which I actually do care about), starting out at a base of $950 million in 2019, ascending each and every year thereafter to its latest reported revenue figure of just under $1.7 billion (2023), evidently growing its revenues throughout COVID-19 along with the most recent biting inflationary era, largely confirming our initial recession resistant assumptions, and I’m sure the company is also growing its annual revenues through opening new locations and leaning further into mobile ordering partnerships with third party delivery apps like DoorDash and Uber Eats.
While it is indeed what we expected for the most part, the verification through revenues was much needed and appreciated, so thank you, Jack.
Onto the condition of the company’s cash flow statement, both Jack in the Box’s net income and total cash from operations figures are seriously low.
Sure, I would’ve liked to use some sort of clever non sequitur there but it’s better to just get to the point on this one.
More specifically, the company’s total cash from operations have ranged (also measuring between and during 2019 and 2023) $144 million (2020) and $215 million (2023), and it makes complete sense as to why the company’s cash extraction was lowest in recent history during the public onset of COVID-19, however, this range is so low and pales in comparison to the company’s aforementioned associated sales (revenues) during these corresponding years.
This leads us to believe that Jack in the Box’s executive staff has some cost cutting to pursue and act upon and it needs to become far more asset-light sooner rather than later in order for us to get excited about its future profit prospects and overall stock price performance.
Ultimately, the cash that this company is carving out of its restaurants is inordinately low with respect to the sales it is generating.
Jack’s stock fundamentals
Speaking of the company’s profits, compared to the industry’s cumulative, respective average, they are in line with our rather sour thoughts, as according to the figures displayed on TD Ameritrade’s platform, Jack in the Box’s trailing twelve month (TTM) net profit margin sits below at 7.03% to the industry’s (not so) comparable average of 13.69%, standing nearly double than that of Sir Jack.
This tracks given the company’s completely and utterly uninteresting total cash from operations in recent years, and therefore I hardly feel the need to continue harping on this point of confirmation.
In addition to the company’s poor profitability metrics, Jack in the Box’s TTM returns on both assets and investment(s) are overall consistent with its profitability, I’m afraid to say, with, for example, the company’s TTM return on investment pegged at 4.74% to the industry’s listed respective average of 17.21%, on a perhaps elementary level indicating that this company’s cost of investment is too high and it perhaps needs to partner with more efficient suppliers or look further within and better manage its investments in order to bolster better returns.
Perhaps a decoupling of Jack in the Box and Del Taco is in order, as this might just be an excellent way to better lean out and streamline operations and at the end of the day make Jack in the Box a more focused company, in a financial, operational and brand-oriented sense.
Should you buy Jack in the Box stock?
Jack in the Box’s stock (NASDAQ: JACK) is an interesting case in the sense that its shares do seem undervalued relative to their intrinsic worth, however, undervalued or not, there isn’t much that we see in terms of near-term operational improvement occurring anytime soon, particularly referencing its more than poor comparable profit margins and relative cash flows.
Talk is cheap and Jack in the Box’s food is not, yet its margins are both depressed and depressing.
While this company does have a few positive financial attributes such as shouldering a decent balance sheet (on a strict industry comparable basis) and growing annualized revenues, until we see some sweeping changes with this company and some positive catalysts, we completely understand why the company’s stock price has fallen a good deal in recent years and we are far from interested in joining the decline.
Jack, you’ve earned yourself a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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