Investment Thesis
El Pollo Loco operates a profitable restaurant business with stable 3.6% revenue growth and reasonable 6.5% net margins, but faces critical liquidity challenges with a dangerously low current ratio of 0.34x and minimal cash position of only $3.9M. Weak capital efficiency (2.7% ROE, 1.3% ROA) combined with minimal free cash flow generation ($2.8M) and insufficient operating cash flow conversion limits financial flexibility and sustainability.
Strengths
- Profitable operations with 9.7% operating margin typical of restaurant industry
- Strong interest coverage ratio of 7.8x indicates manageable debt servicing ability
- Stable revenue growth of 3.6% YoY demonstrates consistent market demand
- Moderate leverage with 0.15x debt-to-equity ratio provides some balance sheet stability
Risks
- Critical liquidity risk: current ratio of 0.34x and quick ratio of 0.32x indicate severe short-term solvency stress
- Dangerously low cash position of $3.9M provides minimal buffer for operational disruptions or unexpected obligations
- Minimal free cash flow of $2.8M (2.2% margin) insufficient for capital investment, debt reduction, or shareholder returns
- Poor capital efficiency: ROE of 2.7% and ROA of 1.3% indicate inefficient use of shareholder capital
- Margin compression: net income growth (3.1%) lagging revenue growth (3.6%) signals operational headwinds
Key Metrics to Watch
- Current ratio and cash position - immediate liquidity crisis indicator
- Operating cash flow and free cash flow generation - sustainability of operations
- Same-store sales growth and unit economics - organic growth quality
- Debt levels and covenant compliance - refinancing risk assessment
Financial Metrics
Revenue
126.2M
Net Income
8.2M
EPS (Diluted)
$0.27
Free Cash Flow
2.8M
Total Assets
609.1M
Cash
3.9M
Profitability Ratios
Gross Margin
N/A
Operating Margin
9.7%
Net Margin
6.5%
ROE
2.7%
ROA
1.3%
FCF Margin
2.2%
Balance Sheet & Liquidity
Current Ratio
0.34x
Quick Ratio
0.32x
Debt/Equity
0.15x
Debt/Assets
50.3%
Interest Coverage
7.81x
Long-term Debt
44.0M
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-09T11:40:30.435550 |
Data as of: 2026-04-01 |
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