A Superb Millionaire-Maker Still Growing Strong

MTY Food Group Inc. (TSX:MTY) dipped +12%. Is it a buying opportunity in the fabulous growth stock?

| More on:

MTY Food Group (TSX:MTY) has been a superb investment. From a penny stock in 2001, it has gone on to deliver an annualized rate of return of more than 30%. In 18 years, a $10,000 has transformed into +$1.4 million!

Even an investment in 2007, before the last recession, would still have been a nine-bagger, turning $10,000 into more than $91,000, equating more than 20% per year of total returns.

However, like any other stock on the market, MTY Food Group stock isn’t without volatility. On Frida, the growth stock declined by +12%.

Before exploring whether it’s a buying opportunity, here’s some background on the long-term outperformer.

hamburger

The business

MTY franchises and operates quick-service restaurants primarily in North America. It has a proven track record of successful acquisitions — acquiring and integrating more than 50 brands over the years.

You’ll often find its brands at food courts, which are often packed around chow time. You’ll likely recognize some of its brands, including Country Style, Croissant Plus, Extreme Pita, Jugo Juice, Koryo, Koya, Manchu WOK, Thai Express, etc.

MTY’s network has more than 5,700 locations, of which about 98% are franchised. Roughly 44% of the locations are in the United States, 47% are in Canada, and 9% are abroad. So, a strong U.S. dollar against the Canadian dollar will be helpful to the company’s bottom line.

A free cash flow generating machine

MTY is an absolute free cash flow generating machine! In the last four reported quarters, it generated nearly $97 million of cash flow. And it only had capital spending of $6.5 million in that period.

This resulted in free cash flow of more than $90 million! The stock pays out about 15% of its cash flow as dividends. The rest of the cash flow is pretty much used to service debt or grow the business via strategic acquisitions.

MTY’s latest acquisitions include South St. Burger and Casa Grecque. South St. Burger is a chain of gourmet burger restaurants with 26 franchised and 14 corporate locations that are mostly in Canada. The network has annual system sales of +$28 million.

Casa Grecque is a chain of bring-your-own-wine restaurants founded 38 years ago. The chain had +$45 of system sales in 2017 and comprises 31 franchised restaurants in Quebec.

Investor takeaway

MTY is a high-margin business with a business model that simply works. Its recent net margin was 33.4%. The stock trades at a forward P/E of under 19, which is a pretty full valuation to pay for the growth stock.

Interested investors who want a piece of the wonderful business can nibble here. However, it’ll be a safer entry point to buy MTY after it has consolidated for awhile. A dip to the high-$40s to mid-$50s would be a great buy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any of the stocks mentioned. The Motley Fool owns shares of MTY Food Group. MTY is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Canadian dollars in a magnifying glass
Dividend Stocks

3 High-Yield Dividend Stocks That Are Screaming Buys Right Now

Are you looking for great income stocks? Here's a trio of high-yield dividend stocks that pay insane yields right now.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Transform a $5,000 TFSA Into a $50,000 Retirement Nest Egg

The TFSA is a powerful tool that can grow a small investment into a substantial retirement nest egg over time.

Read more »

A meter measures energy use.
Dividend Stocks

Is Fortis Stock a Buy, Sell, or Hold for 2025?

Fortis has increased its dividend annually for the past five decades.

Read more »

analyze data
Dividend Stocks

3 Dividend Stocks That Are Screaming Buys in November

Here are three top dividend stocks long-term investors won't want to ignore during this part of the market cycle.

Read more »

senior relaxes in hammock with e-book
Dividend Stocks

Generate $175/Month in Passive Income With a $30,000 Investment

Dividend aristocrats offer reliability, and many of them also offer generous yields. With sizable enough discounts, these yields can become…

Read more »

dividends can compound over time
Dividend Stocks

Best Dividend Stocks to Buy Now for Canadian Investors

These three stocks would be excellent additions to your portfolios, given their solid underlying businesses, consistent dividend growth, and healthy…

Read more »

data analyze research
Dividend Stocks

3 Undervalued Stocks to Watch in November

Not all undervalued and discounted stocks are destined or poised to make a comeback soon, and a protracted timeline can…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

The Perfect TFSA Stocks for Long-Term Growth

Two industry heavyweights are perfect stock holdings in a TFSA for long-term money growth.

Read more »