The latest figures suggest inflation is starting to cool from its lofty 2022 and 2023 highs.
That means those businesses that were hammered by rising supply costs are about to experience some relief.
Wilsons equity strategist Rob Crookston feels like this is a golden opportunity for ASX investors.
"One of the key themes from reporting season was the positive impact of cost disinflation or deflation on certain companies," he said in a memo to clients.
"The Australian economy is in the early stages of disinflation, leaving further runway on this theme over the medium-term."
Indeed, the Wilsons team has practised what it's preached, buying up one particular ASX consumer discretionary stock to take advantage of this tailwind.
Who doesn't like chicken?
Crookston revealed that Collins Foods Ltd (ASX: CKF) was recently added to its portfolio.
The company is the dominant Kentucky Fried Chicken franchisee in Australia, running 272 restaurants nationally.
Collins Foods also operates 64 KFC stores across the Netherlands and Germany, and 28 Taco Bell outlets in Australia.
The Wilsons team makes five points in its investment thesis for the fast food operator:
- Supply cost disinflation
- Store network expansion
- Higher revenue from food delivery
- Value offering to customers
- Cheap valuation
"Collins Foods continues to grow store numbers in Australia and Europe," said Crookston.
"Delivery [is] driving higher revenue – broader customer base from delivery service and increased average revenue per restaurant."
KFC has an image among Australian consumers as a budget way to dine out, providing resilience through tougher economic times.
Although the stock has rocketed more than 34.6% since the start of the year, the Wilsons team reckons it's still ripe to buy.
"Collins Foods looks attractive at a 12-month forward price to earnings ratio (PE) of 18.6x with earnings per share (EPS) growth expected to be 20% per annum (FY24 to 26)."
What do you feel like tonight?
One question some investors might have is why not former market darling Domino's Pizza Enterprises Ltd (ASX: DMP)?
After all, it has a similar business profile and a past track record of delivering for shareholders.
According to Crookston, Collins has the edge against its fast-food rival in several ways.
"Collins Foods looks better value when you consider the earnings growth, lower multiple, superior balance sheet (lower debt) and higher ROIC.
"While both CKF and DMP operate based on a foundation of value, CKF has demonstrated a stronger ability to safeguard its profit margins during a period of elevated inflation by implementing price increases."
Domino's infamously saw its sales plunge after it attempted to introduce a service surcharge.
It seems the market agrees with Wilsons' favouritism towards chicken, sending Domino's share price down almost 20% this year while Collins stocks have soared.
