Future growth slow, but stock has tasty upside

Q: Should I nibble on Sonic’s stock?

A: Sonic is supposed to be a fast-growing player in the fast-food market. Investors are having trouble digesting the company’s slowing growth, however.

Shares of the Oklahoma-based drivein chain got fried 8.4% to close at $25.31 Tuesday following the company’s guidance for future growth. Sonic told investors it plans to see between 2% and 4% growth from restaurants open at least a year in fiscal 2016, which ends next August. That’s down from the 7.3% samestore growth the company saw in fiscal 2015.

Profits, though, appear to be on track. Sonic says it expects between 14% and 18% earnings-per-share growth in fiscal 2016. That jives with analysts’ expectations calling for the company to earn an adjusted $1.26 a share in fiscal 2016, up 15.6% from expected fiscal 2015 results, according to S&P Capital IQ. Same-store sales may not be as hot as some have hoped, but the earnings story is still there. Analysts are sticking by the stock, calling for it to be worth $36.25 a share in 18 months. If correct, that’s a tasty upside of 43%.

If there’s a downside, its that the stock still isn’t a bargain. Shares are trading for 24 times earnings over the past 12 months, which is pricey next to expected long-term growth of 16%.