If you were responsible for the day to day running of a fast food business as a director it’s unlikely you’d be buying a big chunk of shares at 52-week highs unless you were confident in the outlook. Well, Stephen Copulos, a director of KFC and Sizzler restaurant operator Collins Foods Ltd (ASX: CKF) has been confident enough to buy around $450,000 worth of shares in July at an average price around $2.43. That’s above today’s price of $2.40 and just shy of the 52-week high of $2.45.
Collins Foods announced well received full-year results in June showing underlying net profit up 9.3% as operational efficiencies supported margins which are key to low-cost fast-food businesses. The importance of brand strength amongst fast-food businesses has been underlined by the fact that while the KFC businesses have done reasonably well, the new Sizzler restaurants have failed to grow and acted as a deadweight on the share price until the recent results announcement.
Perhaps the director buying is an indication the KFC expansion opportunities across Australia are undervalued, or there is potential to acquire and develop other operations in the retail food and restaurant industry sector. Or perhaps Mr Copulos just thought he was getting a good deal with the group trading on 16.2 times earnings of 15.1 cents per share for the financial year. If Collins Foods is able to replicate anything like the success of pizza chain Domino’s Pizza Enterprises Ltd. (ASX: DMP) he certainly will be getting a bargain.
Back in November 2013 this Motley Fool article reported how some Macquarie Group Ltd (ASX: MQG) directors went on a shopping spree for shares in the investment bank when they too were trading around 52-week highs of $53.62, since then the price has climbed around 13% with some juicy dividends thrown in.
This just goes to show how it’s unlikely directors would buy shares in a business unless they were very positive on the valuation and outlook. Luckily there’s one more business that has also seen director buying recently that is probably the best bet of all right now, with double-digit profit growth and an extremely attractive income, it’s still trading on great valuations! Find out its name for free now by simply entering your email address below…