Mr. Buckley: I'd say that investor sentiment for the restaurant industry has changed pretty significantly in the last three months, becoming favorable at long last. If you look back over the last year and a half, investor sentiment has been very negative. Up until the past couple of months, investors tended to shrug off what has been a very good fundamental performance by the industry. That has shifted more favorably partially due to rotation of money away from technology and also due to growing concerns about a slowing overall economy where the relative earnings growth of restaurants is apt to look quite good. Valuations have improved quite considerably from very depressed levels earlier this year. We think the current valuation levels are pretty reasonable; this is where we think they should have been for quite some time. There's still upside to the valuation levels from here. We think that what was abnormal were the very low levels from which they came, which made very little sense to us for the 18 months prior to the recent bounce in the group.
TWST: Andrew, what strikes you most about investor sentiment today?
Mr. Barish: I agree with a lot of Joe's comments. Our thesis has been
that the industry has evolved from a consumer cyclical to one with
qualities of a consumer staple and defensive, high quality growth. And
certainly the market correction over the past six months has led people
to gravitate toward high quality growth companies that are not
technology-related. The restaurant industry has definitely benefited. I
still think there are some investors out there who are not yet convinced
or have missed the recent run-up in the stocks, which has been pretty
significant. Basically from September 1 to date, when the NASDAQ last
made its recent high, it is down about 30% since then, the casual dining
stocks are up about 30%, quick service restaurants are up about 18% to
20%, and some of the high growth, specialty concepts are up about 25%.
Some of the leadership names are up even more than that. So we've seen
increased interest. However, I still think there is another leg to go on
the upside. I think the restaurant industry is going to benefit from the
potential for interest rate cuts, which are looking more and more
evident as we move into 2001. There is still the textbook perception
that this is an early cycle consumer industry, and the time to buy
restaurants and retailers and gaming and lodging companies has
historically been when you are facing rate cuts and the potential for
acceleration of consumer demand. So I think we've had our cake recently
and there may be another chance to eat it, too, going forward. I still
think sentiment is positive out there.
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