SHOBHIT SETH, 25 June 2019
Founder and president of Kynikos Associates, Jim Chanos, is betting against two popular fast food stocks. Talking about his short positions in Dunkin’ Brands Group Inc. (DNKN) and Burger King’s parent company, Restaurant Brands International Inc. (QSR), the closely followed short seller told CNBC in an interview on Thursday morning, “We’ve been short these things for about a year.” (See also: The World’s Top 10 Restaurant Companies.)
Providing the justification for his short calls on the stocks, Chanos expressed concerns about the increasing price-to-earnings ratios of the restaurant stocks as the business continues to struggle. An increasing trend in price-to-earnings ratios indicates a higher price of the stock compared to its earnings potential and is considered to be detrimental to sustained positive returns from the stock investments.
Questioning the viability of the “franchisers versus the franchisees” operating model of such businesses, Chanos added that he doesn’t like what he calls “this asset-light idea” of these companies not owning their restaurants while “basically clipping the coupons, collecting royalties” from the franchises.