Can You Buy Stock in Chick-fil-A?

Chick-fil-A is the nation’s top fast food chicken chain, surpassing KFC and Popeyes in recent years. But, can you buy stock in Chick-fil-A?

It’s a great question to ask because the restaurant could be an enormously profitable investment center. The food and customer service are tremendous, which leaves investors chomping at the bit.

Chick-fil-A History

Chick-fil-A began operations in Atlanta during 1946, but it would be under a different trade name (Dwarf House).

Dwarf House was launched by founder, S. Truett Cathy, offering the nation’s original chicken sandwich. Ironically, Dwarf House focused on hamburgers and steak, and there are still 12 locations today.

Dwarf House spun-off into Chick-fil-A in 1967 and began solely focusing on their most popular menu item, the chicken sandwich.

The name is a play on words instead of “fillet”, and the “A” means “Grade A” quality meat. The chain never sacrificed on quality and ingrained their values throughout the company.

Since the company’s origins, the founders instilled Christian values, and they have never been (and never will be) open on Sundays. Quite inconvenient when you’re craving chicken after Sunday worship service!

Chick-fil-A’s employees are renown for offering impeccable customer service, and they win an award virtually every year.

Fast Food Giant

By the end of 2021, Chick-fil-A is expected become the third largest fast food chain (behind Starbucks and McDonald’s) and surpass Subway.

Buzzfeed notes, “(Chick-fil-A) today ranks seventh nationwide among fast-food chains in terms of sales, but it’s on track to become the third-largest in the next two years”.

I personally don’t consider Starbucks to be a fast food restaurant, so they would be the second largest chain in my eyes.

Revenue and Profitability

Chick-fil-A generates more revenue per location than any other chain, and it’s not even close! AND, they’re only open 6 days a week.

Forbes noted, “In 2017 alone its average sales per restaurant was about $4 million, compared to its competitor McDonald’s, whose average was $2.6 million.”

One of the driving reasons for higher revenue is the higher menu price points for their popular items. For example, McDonald’s offer their “Dollar Menu” with small fries and other low priced items.

Contrarily, a chicken sandwich and medium waffle fry from Chick-fil-A will run you north of $6 in most states.

Their input costs are relatively comparable with their competitors, but they have generated massive pricing power and demand. This enables Chick-fil-A to earn fat profit margins.

The profit margin of a company is it’s net income (profit after all expenses are paid), divided by total revenue. The average profit margin for restaurants is between 6-9%.

Chick-fil-A in recent years has run a margin above 10%, which enables corporate to generate more free cash flow for stakeholders.

Famous Chicken Sandwich

The Chick-fil-A chicken sandwich is in a complete realm of its own. Okay, Popeyes has a pretty darn good recipe as well, but Chick-fil-A has a slight edge in my perspective.

I absolutely love their chicken sandwich, and any other competitor’s is blasphemy in my eyes. Popeyes, KFC, and McDonald’s have all tried to mirror their success to no avail.

Well, except that time when Popeyes had full-on brawls over their sandwich shortage, but I digress. The following is an actual headline from a Milwaukee chicken sandwich tussle.

The chicken sandwich and waffle fries combo is the chain’s bread-and-butter, delivering well over 50% of the company’s revenue.

Privately Held

Before S. Truett Cathy passed away in 2014, his children (heirs to the family business) were forced to sign a contract stating they would never take the company public.

Taking a company public simply means the equity is traded on a public stock market exchange (Nasdaq and NYSE are the most popular).

There are many positive benefits of taking a company public, and the largest pro is more access to financing for expanding operations and growth.

However, there are SIGNIFICANT downsides as well! In my opinion, I believe these are probably the top reasons Truett wanted to keep the business privately held.

  • State and Federal Securities Regulation
  • Hostile Takeover Propositions
  • Reduced Individual Control
  • Shareholder Formality Costs
  • External Financial Reporting
  • Loss of Family Culture

A hostile takeover occurs when an activist investor buys publicly traded shares to gain control over the corporation. They mainly do this because they believe the company is inefficiently managed.

Thus, by gaining control, they can stack the board of directors, replace management, and yield more profit for shareholders.

A hostile takeover would be devastating for Chick-fil-A, and it would obviously destroy their culture. The clear first step would be to open locations on Sundays for more revenue.

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Chick-fil-A certainly had no trouble with growth (I mean c’mon, their food is delicious), so there is no need for taking the business public.

Can you buy stock in Chick-fil-A if they never go public? No, but you can open your own franchise if you desire to profit from their great brand awareness.

Own Franchise

For the low price of $10,000 you can open your very own Chick-fil-A franchise! That may not seem like a bargain, but that’s rock bottom pricing for owning a fast food franchise.

McDonald’s franchising requires an initial investment surpassing $1,000,000 in most cases! This doesn’t mean launching a franchise for the chicken giant is easy by any stretch.

In fact, company management performs comprehensive due diligence on franchise owners. Additionally, you can only operate one franchise location, so the option to scale is impossible.

Chick-fil-A wants their owners to diligently focus on their one location and make it a top-notch experience for customers.

The details of franchise arrangements are closely guarded, but I’m sure stores are required to pay a percentage of their gross revenues back to corporate.

Social Scandals

Vox reports, “Chick-fil-A is arguably best known for three things: its juicy chicken sandwiches, its employees’ perpetually chipper attitudes, and its long history of donating to charities with anti-LGBTQ stances.”

Going back to those Christian values embedded in the company’s culture led Truett to make public statements on his beliefs about same-sex marriage being immoral.

The following statement was released by CEO Dan Cathy after the legalization of same-sex marriage in the United States.

can you buy stock in chick-fil-a with these anti-lgbtq tweets

Chick-fil-A has been pressured many times to stop backing these stances, but they have remained steadfast in their beliefs. There has been no notable impact on their bottom line.

However, as the culture of the nation shifts, it’s hard to believe these scandals can continue to be swept under the rug.

Estimated Firm Value

You might be asking, “What do you think is the enterprise value of Chick-fil-A if it were to go public?” The enterprise value is the sum of cash, debt, and the market value of equity.

There are three common methods analysts use to value a business. The methods may vary based on the industry, but these are pretty conventional tools.

  • Income Approach (DCF Analysis)
  • Market Multiples
  • Precedent Transactions

The income approach forecasts free cash flows for the firm, using an appropriate discount rate and realistic business growth assumptions.

The most common market multiple method is dividing earnings before interest, tax, depreciation, and amortization (EBITDA) by the enterprise value of competitors.

How do you know you’re using the right market multiple and comparing apples-to-apples (not apples-to-oranges)? That’s where the NAICS code comes into play.

The North American Industry Classification System (NAICS) system uses six-digit codes to identify an industry. The first five digits are standardized in the North America.

Finally, precedent transactions look at recently completed mergers or acquisitions to see what the fair market value might be.

It’s similar to using recently sold houses in your neighborhood to estimate your home’s value. Just like you need to smooth estimates for bedrooms and bathrooms, you can smooth precedent transactions for revenue and margins.

Once you calculate firm value for each approach, you need to assign each method a probability to triangulate the estimated enterprise value.

Without public financials, it is impossible to even ballpark Chick-fil-A’s enterprise value. However, McDonald’s EBITDA multiple hovers around 20, so we could use a similar figure for the chicken giant.

Alternative Fast Food Investments

So, you can’t buy stock in Chick-fil-A, but you’re determined to buy equity in another fast food chain. What are some of your alternative options?

  • McDonald’s (MCD)
  • Yum! Brands (YUM); own KFC
  • Shake Shack (SHAK)

You can use any broker (Vanguard, Fidelity, or Robinhood) to purchase shares.

Can You Buy Stock in Chick-Fil-A?

It’s a great question to ask because the restaurant could be an enormously profitable investment center. The food and customer service are tremendous, which leaves investors chomping at the bit.

Ultimately no, you cannot buy stock in Chick-fil-A, but you can open a franchise location for the low price of $10,000. The closely held corporation has vowed to never take the business public.

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