One of the "hot deals" on offer this week is Bojangles' (NASDAQ: BOJA) with their "Famous Chicken and Biscuits." We've had a steady stream of new restaurant deals in the past few years with names including Shake Shack (SHAK), Chuy's (CHUY), Habit Restaurants (HABT) and Zoe's Kitchen (ZOES). (You can peruse the roadshow slide deck here - BOJA IPO slides. A transcript will be ready soon and posted here when ready.)

Bojangles' has a number of strong trends in their favor. Their base of operations is in the South East which enjoys faster overall population growth than the rest of the US. The company still has lots of room for expansion in the area. Specifically the company can double their existing number of restaurants within their current footprint and double it again from there if they look nationwide.

In addition to demographics the average ticket of about $7 at BOJA is lower than almost any other tasty option and about half the amount of a Panera. The combination of low price/high quality helps to insulate the company from any slowness in consumer discretionary spending. Their ingredients have fairly stable pricing (unlike shellfish for example where cost increases have helped to torpedo results at Ignite Restaurants (IRG).)

There is love in the food at Bojangles' in that they make things fresh, don't use microwave ovens, brew their own tea and take pride in the food. The biscuits are the star of the food show at Bojangles'.

A mixed owned/franchise model has provided solid growth with attractive cash flow. In this way they are a hybrid of the company-owned and franchise players.

The company has built a strong corporate identity and culture in a "Zappos like" kind of way that we would place a high if hard-to-quantify value on it. Although we haven't had the pleasure of dining in one we can imagine the experience, especially in contrast to the typical indifference from clinically depressed workers in other outlets like McDonalds or Subway.

So where is BOJA likely to trade post pricing? Restaurant valuations are all over the map (see table) due to many of the usual execution and positioning factors but amplified due to the difference between the company-owned versus franchise model. BOJA sits in the middle of these two with favorable positioning and strong execution. The average P/S ratio is 2.9 for the more recent growth group and 2.7 for the established players. Based on the table and the growth and margins at BOJA the right number is probably around 4x sales which would translate into a $35 to $40 share price. As we have seen from the mania around Shake Shack (SHAK) investors can push shares to unreasonable levels (SHAK trades at 8x sales) but we're pretty confident in the 4x number for BOJN at least in the longer term.

Click on picture to enlarge

As a side note it looks more and more like McDonald's (MCD) may find a turnaround much harder to accomplish in this kind of competitive environment. The bar is being raised in multiple areas - breakfast, burgers, and healthy fast food. McDonald's is trying to turn their business around but so far has relied on internal management for strategy and faces the classic dilemma of needing to change but not wanting to alienate their current core customer base.

That's good news for companies like Bojangles', Panera (PNRA), Chipotle (CMG), and Shake Shack. Will MCD ever get serious with their own strategy? Might they realize they need multiple brands (sort of like Starbucks (SBUX) when they acquired Teavana?) With an EV of $105B MCD could afford to buy up the entire list of growth names in this table. Hopefully somebody there is thinking outside the bun.