Sonic Earnings Preview: Why Its Already Pricey Shares Should Head Higher

NEW YORK (TheStreet) --  Sonic (SONC) will report fiscal third-quarter earnings results Monday after the closing the bell. The Oklahoma City, Okla.-based fast-food chain continues to do a remarkable job of separating itself from the fierce competition that exists among its sit-in restaurant rivals.

Unlike, say, McDonald's (MCD) , whose restaurants are designed for customers to sit and eat, Sonic's drive-through/drive-in business model relies on customers eating in their cars or taking their food with them. This helps Sonic keep its overhead and labor costs lower since -- for instance -- employees don't have to clean tables or mop dining-area floors after meals.

Moreover, given the smaller amount of space a Sonic needs, it can operate its restaurants with a lower number of employees per shift and considerably lower operational costs like air conditioning and electricity, among other expenses.

The success of this thin model is reflected in Sonic's share price, which is up more than 16% year-to-date, and up more than 45% over the past twelve months, far outpacing the broader averages. Longer term, investors who bought Sonic shares three years ago and and held them have seen their value skyrocket 236%, compared to 57% gains for the S&P 500 (SPX) during that period.

When compared with the valuation of the S&P 500, which trades at a P/E ratio of 21, Sonic stock is not cheap at its current P/E of 32. Still, with the company embracing a mobile strategy to speed up customer orders and cut down even further on labor costs, Sonic's profit margins are poised to expand in the quarters and years ahead.

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