On Monday, Roth/MKM adjusted its outlook for GEN Restaurant Group (LON:RTN) (NASDAQ:GENK), reducing the price target from $14.00 to $11.00 but maintaining a Buy rating. The revision comes as the firm sets new projections before GENK's fourth-quarter report for 2023. Anticipating a downturn in comparable store growth (comp growth), the analyst projects about negative 2% comp growth for the fiscal year 2024, a departure from the previously expected flat growth.
This change is attributed to a continuation of the sluggish industry traffic observed in the second half of 2023, with comp growth already at negative 1.9% in the third quarter of 2023.
For the fiscal year 2025, the analyst has set expectations for flat comp growth, adjusting the forecast in light of the current market conditions. Additionally, there is a shift in the expected number of new restaurant openings for GENK. The analyst now anticipates seven new openings in the fiscal year 2024, down from ten, and eight openings in the fiscal year 2025. This revision aligns with the limited number of "coming soon" listings on GENK's website, raising concerns about the company's ability to meet its previous target of 10-12 new units annually.
The reassessment also includes a reduction in both restaurant-level and consolidated EBITDA margin forecasts. This is primarily due to the negative comp growth that GEN has been experiencing. Notably, there hasn't been a menu pricing increase since the third quarter of 2023, which could be contributing to the margin pressure. The update reflects caution regarding GENK's near-term growth prospects and operational challenges.
InvestingPro Insights
As GEN Restaurant Group (NASDAQ:GENK) braces for its upcoming fourth-quarter report, real-time data from InvestingPro offers a deeper look into the company's financial health and market position. With a market capitalization of $31.59 million, GENK is navigating through a challenging period marked by recent stock volatility. Over the last week, the stock has seen a significant decline of approximately 9.81%, reflecting broader concerns within the industry and potential investor reaction to the anticipated downturn in comp growth.
InvestingPro data reveals a P/E ratio of 23.89, which, when adjusted for the last twelve months as of Q3 2023, stands at a much lower 4.06. This discrepancy suggests that the company's earnings power may be currently undervalued by the market, presenting a potentially attractive opportunity for investors comfortable with the associated risks. The Price/Book ratio during the same period is 5.02, indicating a premium valuation in terms of the company's net asset value.
In terms of operational performance, GENK's revenue for the last twelve months as of Q3 2023 was $176.75 million, with a healthy growth of 9.5%. This shows the company's ability to increase sales despite the industry's headwinds. However, it's important to note that analysts expect a dip in net income for the current year, which could impact future performance.
InvestingPro Tips highlight that while the stock has been under pressure, GENK's valuation implies a strong free cash flow yield and the company is trading at a low earnings multiple. Additionally, GENK's liquid assets exceed its short-term obligations, providing a cushion against financial stress. It's worth mentioning that there are 10 additional tips available on InvestingPro for GENK, which can offer further insights into the company's financial nuances and investment potential. For those interested in exploring these tips and enhancing their investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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