Sunday, April 14, 2013


Denny's, the home of the Grand Slam Breakfast is turning into a home run stock for investors.  I've been a big fan of the Grand Slam Breakfast, 2 pancakes, 2 eggs, 2 slices of bacon, and 2 sausage links for years.  It seems like no matter where you go on vacation, right across the street from your hotel is a Denny's.  I love comfort and Denny's is the ultimate in "comfort food".

Here are a few good reasons to consider Denny's (DENN)

1. In the past year the stock has moved from $4 to $5.60. A nice 12 month move of 40%.

2. Denny's earnings have increased by 20% in each of their last 2 quarters.
3. Their Price/Sales ratio is 1.07
4. In the last reported quarter, Denny's beat expectations on revenues and beat expectations on earnings per share.

Two other things worth noting, is that usually when you see an established company like Denny's grow earnings by 20% in 2 consecutive quarters, it means that management is doing something extraordinary (different) and the pipeline they have laid to create that excellence will remain in place for the foreseeable future, which will most likely translate into continued price appreciation. To give you further perspective on this whole thing, McDonald's in the same time period, increased earnings by 10% two quarters ago and in the last quarter, their earnings actually went down 1.5%.  So in the last 6 months, McDonald's (MCD) has increased their earnings by approximately 9% while Denny's has increased theirs by 43%. How is that for a comparison?

The second thing, is that recently Denny's delayed expanding into southern China. Some saw this as being a negative for the company.  Really? Maybe the opposite is true and that management should be applauded for having the foresight to think twice about doing it now.

Ultimately for me, it comes down to the basics, I know the product, I like the product, the company's earnings are accelerating at a rapid pace (and will probably continue to do so) and it's stock price is under valued when using the price to sales metric.