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Sonic Offers the Tasty Trade in Burgers


The humble hamburger has seen one of the biggest booms in terms of both offerings and sales growth.

Sonic has also scaled back on the outrageous items, such as the Frito Dog or the bacon milkshake, which it seems to offer as more of a response to competitors like Jack in the Box (NASDAQ:JACK) or Yum's (NYSE:YUM) Taco Bell brand. For Sonic, these seem to be more like marketing tools, often featured in a revitalized and humorous advertising campaign, as opposed to menu staples that will drive long term growth. It's a hook to get cars in the port and sell the basic burgers, hotdogs, and shakes.

A Lean Financial Profile

Sonic has one of the better balance sheets and returns on equity, as well as relatively low valuation within the sector. Let's look at some basic metrics using McDonald's as the bulletproof benchmark and Red Robin Gourmet Burger (NASDAQ:RRGB) as its closest competitor in term of size; both have a market cap of approximately $500 million, and a comparable number of restaurants in similar geographical locations. The below number are all based on 2012, which includes year-end estimates.

While no one can seem to touch the profit margins of McDonald's thanks to its scale and efficiency, Sonic stacks up favorably in terms of value and return on equity. The growth rate is also a respectable 15% over the past five years-- but I will admit that expansion is somewhat limited given the current concept, which relies on seasonable weather and a car culture.

See also: Sonic: Buying Calls Ahead of Earnings

Twitter: @steve13smith

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No positions in stocks mentioned.

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