Every Monday we now feature “A Stock to Sell” as our daily post. With every stock we recommend as a sell, we give you a full explanation of why we advise against investing in the stock at this time.
EL POLLO LOCO (symbol LOCO on Nasdaq; www.elpolloloco.com), specializes in Mexican-style grilled chicken. El Pollo Loco means “the crazy chicken” in Spanish. The company fire-grills citrus-marinated chicken in front of its customers.
El Pollo Loco first sold shares to the public and began trading on the Nasdaq exchange on Friday, July 25, 2014. The quick-serve restaurant chain raised $100 million in an initial public offering (IPO) of 7.1 million shares priced at $15 each.
The stock has more than doubled since its initial listing, and it continues to hit new highs.
El Pollo Loco has 401 locations in five U.S. states, including Texas and Arizona, but the majority of its restaurants are in California; last year, the company generated 80% of its revenue from the greater Los Angeles area. El Pollo Loco has ambitious plans to expand and believes it has the potential to one day operate 2,300 locations in the U.S.
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Investment advice: New issues usually come to the market when it’s convenient for insiders
In the three months ended March 26, 2014, the company’s revenue rose 5.8%, to $81.4 million from $77.0 million a year earlier. It earned $5.5 million, or $0.19 a share, compared to a loss of $60,000, or nil per share. Same-restaurant sales rose 7.2%.
El Pollo Loco should benefit from rising demand for healthier food (its chicken is grilled, not fried) and the growing Hispanic population in the U.S. However, it operates in an intensely competitive market, with major Mexican-style food chain competitors like Chipotle Mexican Grill.
As well, it competes with other fast-food restaurants that specialize in chicken, such as KFC and Chick-fil-A. The company’s current narrow focus on the Los Angeles market also adds a lot of risk.
We generally advise against investing in new issues, for one simple reason: they come to market when it’s a good time for the company or its insiders to sell, but that may not be a good time for you to buy.
We see no reason to make an exception for El Pollo Loco, and we advise against buying it.
Last week we advised investors to sell and take profits on a large Canadian stock. You can see the article here.
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Every Monday we now feature “A Stock to Sell” as our daily post. With every stock we recommend as a sell, we give you a full explanation of why we advise against investing in the stock at this time. 
