Alsea Group: Making the Plunge (Ticker: ALSEA)
Why I finally pulled the trigger and bought Alsea Group stock
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Alsea Group (ticker: ALSEA) is one of the stocks I bought during the market turmoil this week.
As a franchise operator of American restaurant brands such as Domino’s Pizza and Starbucks in Mexico, Alsea Group will benefit from the growing middle class in the country.
It also operates in Europe and South America, although the majority of profits come from Mexico (see chart below).
Mexican wages have doubled in the last 10 years (again, chart below). Reshoring manufacturing to Mexico as opposed to China or Asia will propel this figure higher and higher, leading to a much larger middle class in Mexico five years from now.
Higher average wages equal more citizens including restaurant spending in their regular budget. This will benefit Alsea Group.
With fewer than five thousand units across its brands, Alsea has plenty of room to grow its store count serving a population of 130 million in Mexico and hundreds of millions more in South America and Europe.
Here is same-store sales growth going back to 2018:
2018: +4.9%
2019: +5.1%
2020: -23.0%
2021: +30.7%
2022: +34.8%
2023: +15.1%
2024: +8.5%
Same-store sales growth collapsed in 2020 but then rebounded sharply in 2021 and 2022. This was likely due to Alsea Group being better able to manage the pandemic compared to mom-and-pop shops with its digital ordering, loyalty programs, and scale. Inflation also kept the numbers ticking higher in 2022 and 2023.
In 2024, growth slowed down but still remains and impressive 8.5%. Even with the pandemic collapse, revenue has grown at a 10.4% annual rate (in Peso terms) since 2015. I expect this to continue due to rising Mexican wages and expanding store count over the next 10 years.
Alsea Group is cheap. By my count as of this writing, it has an enterprise value of 58 Billion Mexican Pesos. Operating income was 8.3 billion Mexican Pesos in 2024.
We are at an EV/EBIT of 7. For a company that can grow its earnings at a double-digit rate for the next decade. Yes, there is a lot of debt on the balance sheet, but it is at a manageable level and the company consistently generates free cash flow.
Management returns cash to shareholders through dividends and share buybacks. I hope they continue to repurchase shares at these low stock prices.
Of course, Ian Bezek from Ian’s Insider Corner came on the show to discuss the company a while ago and has been covering the stock in his own newsletter. I would recommend you read both:
Interview: Alsea (Ticker: ALSEA) With Ian Bezek
Twitter thread with all prior stock analysis interviews: https://twitter.com/CCM_Brett/status/1449770134017478664?s=20
Hope everyone has a good weekend! I plan to stay away from Twitter and Substack until Sunday evening.
-Brett
Have you tracked store count density by franchise, eg as a % of population, and compare it to the US or UK or other developed markets to get a sense of the store count growth potential? Obviously there are per capita income differences, but it would still be interesting to see the density of a developed market vs a developing one to get a sense of the potential over a long duration
Hello Brett, may I ask you, how did you arrive at the EV of 58 Billion Mexican Pesos in this particular case?