News

The ONE Group has gotten torched over the last six months - since October 2024, its stock price has dropped 20.8% to $2.85 per share. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in The ONE Group, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free .

Even with the cheaper entry price, we're swiping left on The ONE Group for now. Here are three reasons why STKS doesn't excite us and a stock we'd rather own.

Why Is The ONE Group Not Exciting?

Doubling as a hospitality services provider for hotels and resorts, The One Group Hospitality (NASDAQ:STKS) is an upscale restaurant company that operates STK Steakhouse and Kona Grill.

1. Shrinking Same-Store Sales Indicate Waning Demand

Same-store sales show the change in sales at restaurants open for at least a year. This is a key performance indicator because it measures organic growth.

The ONE Group’s demand has been shrinking over the last two years as its same-store sales have averaged 2.6% annual declines.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for The ONE Group, its EPS declined by 19.9% annually over the last five years while its revenue grew by 41%. This tells us the company became less profitable on a per-share basis as it expanded.

3. High Debt Levels Increase Risk

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

The ONE Group’s $641.2 million of debt exceeds the $27.58 million of cash on its balance sheet. Furthermore, its 8× net-debt-to-EBITDA ratio (based on its EBITDA of $79.17 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. The ONE Group could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope The ONE Group can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

Final Judgment

The ONE Group isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 0.8× forward EV-to-EBITDA (or $2.85 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now. Let us point you toward an all-weather company that owns household favorite Taco Bell .

Stocks We Would Buy Instead of The ONE Group

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