Over the last six months, El Pollo Loco’s shares have sunk to $10.96, producing a disappointing 5.8% loss - a stark contrast to the S&P 500’s 7.1% gain. This might have investors contemplating their next move.

Is now the time to buy El Pollo Loco, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think El Pollo Loco Will Underperform?

Even with the cheaper entry price, we're swiping left on El Pollo Loco for now. Here are three reasons why there are better opportunities than LOCO and a stock we'd rather own.

1. Same-Store Sales Falling Behind Peers

Same-store sales is a key performance indicator used to measure organic growth at restaurants open for at least a year.

El Pollo Loco’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 1.3% per year.

2. Fewer Distribution Channels Limit its Ceiling

With $476 million in revenue over the past 12 months, El Pollo Loco is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

3. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect El Pollo Loco’s revenue to rise by 4%. Although this projection indicates its newer menu offerings will fuel better top-line performance, it is still below average for the sector.

Final Judgment

El Pollo Loco falls short of our quality standards. Following the recent decline, the stock trades at 5.1× forward EV-to-EBITDA (or $10.96 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.

Stocks We Would Buy Instead of El Pollo Loco

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.

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