Same-store sales are a start, but as you can see, the metric doesn't really address corporate profitability.
2. Seek Growth
In conjunction with same-store sales and gross margins, another side of a retail or restaurant company that needs to be considered is growth.
Growth is a major ingredient in retail and restaurant stock investing. Typically, a retail or restaurant "concept" begins as one store. If it's successful, then the concept will expand to multiple stores in a local vicinity. As growth continues, store openings will spread to others states and eventually become a regional chain. From
there, the company will expand to other regions and will strive to establish a nationwide brand. This is the local-to-national growth scenario.
However, when seeking growth, we can't stop there. With the prevalence of globalization, we also have to be on the lookout for companies that are moving from nationwide to worldwide.
Some of the companies in the process of going local to national that I closely monitor are
Dick's Sporting Goods(DKS Quote - Cramer on DKS - Stock Picks) and
Ruth's Chris Steakhouse(RUTH Quote - Cramer on RUTH - Stock Picks). In the national-to-international category,
McDonald's(MCD Quote - Cramer on MCD - Stock Picks),
Yum! Brands(YUM Quote - Cramer on YUM - Stock Picks) and
Costco(COST Quote - Cramer on COST - Stock Picks) are expanding rapidly outside the U.S.
As investors, we want to capture companies as they are growing. Typically, that growth will result in increasing same-store sales, gross margins, total sales and earnings.
3. Do Your Own Field Research
Peter Lynch, the famous mutual fund manager known for his GARP (growth
at a reasonable price) approach to investing, would get many of his stock ideas by checking the shopping bags that his wife would bring home. For the last two years, I have taken field trips with my students from Seton Hall University to the Palisades Center Mall in West Nyack, N.Y. At the mall, we conducted surveys and performed
several observations of individual stores. Here are a few effective ways to conduct field research at a mall near you:
Scott Rothbort
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