Image source: Getty Images.
Continue Reading Below
Retirement just isn't what it used to be.
Faced with the prospect of dwindling pensions, inadequate retirement savings, and longer life expectancy, many retirees are choosing to open businesses -- often of the franchised variety -- in order to grow their wealth and fund their lifestyles. Yet another option exists that can provide retirees with many of the same wealth accumulation benefits of owning a franchise, without the burdens of operating one: investing in the stocks of the best franchised businesses. And one of these stocks currently offers a particularly appealing combination of strong growth potential and relatively low risk. Read on to learn more about it.
Image source: Burger King.
Carrols Restaurant Group (NASDAQ: TAST) is the largest franchisee of Burger King restaurants in the United States. It operates more than 750 of the fast food chain's restaurants -- about 10% of all Burger Kings in North America. This scale allows Carrols to leverage its cost base over an ever-expanding number of stores, thereby allowing it to produce higher profit margins than smaller franchisees.
Additionally, Carrols gets its pick of the litter when it comes to purchasing more locations. As part of a deal in 2012 in which Carrols agreed to purchase 278 restaurants fromBurger King parent company Restaurant Brands International(NYSE: QSR), it alsoacquired a right-of-first-refusal agreement that gives it the first opportunity to buy any Burger King franchise for sale in 20 states. The same deal also saw Restaurant Brands Internationalacquire a 21% ownership stake in Carrols Restaurant Group, further aligning the two businesses' interests and fates.
Carrols growth-through-acquisition strategy is simple: It buys Burger King franchises, improves and streamlines their operations, and then uses the free cash flow to buy more restaurants. The company also occasionally issues equity and debt to obtain additional capital to further augment its growth.
Because it buys existing stores, Carrols incurs less risk than is typical in opening new locations. With its proven ability to increase sales and cut costs, Carrols is able to quickly increase the value of the restaurants it purchases. This almost guarantees a strong return on its investments, provided that the core Burger King concept remains relevant -- which it has done for more than six decades, and should continue to do as long as Americans' love affair with hamburgers and fries persists.
All told, Carrols is a best-in-class franchise operator with a proven, value-creating capital allocation strategy. For retirees with dreams of owning a franchise, buying some of its stock may be the best way of going about it.
10 stocks we like better than Carrols Restaurant Group When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Carrols Restaurant Group wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of January 4, 2017