Grant Takes On Wendy’s Financial Engineering

Over the past five years, the average forward price-earnings multiple of restaurant stocks stood at 16, today, that multiple has expanded to 26. The June 26, 2015, issue of Grant’s lays out the bear case for restaurant stocks, Wendy's in particular.

Wendy’s: High valuation

Grant’s points out that there have been several reasons why the market has become more positive on restaurant stocks over the past few years. Most recently, falling gas prices, a strong dollar and falling crude prices will have a knock-on effect on the industry, lowering costs and boosting levels of consumer spending.

However, as Grant’s goes on, it’s important to remember that the restaurant industry is highly cyclical, faddish, competitive and leveraged -- four qualities that are...