Breaking down another interesting but highly speculative stock

Last week, I wrote about two interesting but highly speculative stocks: air-taxi companies Joby Aviation (JOBY) and Archer Aviation (ACHR).

Today, I'll discuss another one: Kura Sushi USA (KRUS), a revolving sushi bar restaurant concept imported from Japan (the parent company is 40 years old and operates more than 500 units in its home country).

I saw management present at the ICR conference in Orlando earlier this month and was intrigued enough to see if there was a unit nearby. To my surprise (given that there are only 56 in the entire U.S.), there was... so I had dinner there before catching my flight to Las Vegas for the Consumer Electronics Show.

Since many readers probably (like me, before I went) might not what a revolving sushi bar is, allow me to explain and share some pictures...

Diners either sit at a counter or in booths like this:

The food comes by on a constantly moving conveyor belt like this:

Each plate is the same price – but, depending on the item, some have more or less on them (e.g., one piece of sashimi versus six pieces of California roll). This is what I selected for myself:

The average guest has six plates. When you finish one, you slip it into the slot (in the picture above, just to the right of my drink) and it's added to your bill.

There's a computer screen at each seat/booth where diners can order certain items like the dumplings on the left in the picture above, as well as drinks – you can see them behind me in this picture:

The drinks are delivered by a robot – cool!

The conveyor belts all go into the kitchen, where they are constantly replenished:

Overall, I loved the concept and would definitely go back. And I'm not the only one who feels this way, as a friend told me there are always long lines outside the one near her home in New Jersey (the one I visited wasn't crowded, no doubt because it was early on a rainy Tuesday night).

And here are some comments from one of my colleagues at Stansberry Research, Steven Longenecker:

I love the one in Washington, D.C. It's decent-to-good sushi, but you go for the fun experience. It's targeted toward parents and kids (and grandparents).

Everything is accessible, which helps with kids knowing what to order. Prices are super reasonable – all sushi under $4 per plate in D.C., versus $6 to $12 for equivalent dishes at a few other D.C. sushi places we frequent. Entrees and ramen are a little more.

All the sushi is wasabi-free between the fish and rice, which doesn't sound like a big thing until you've had your child freak out about the hidden spiciness of nigiri they've had a dozen times before.

If you insert 15 plates, you get a little prize that automatically comes down a chute. It's also interactive and localized – for example, in D.C. you "save" the city from an alien or robot invasion. It definitely entices us to order a couple more plates.

So it's a fun and novel concept, but what about Kura's stock?

As you can see in the chart below, it has done well since the 2019 IPO:

It has a $1 billion market cap and trades at 5.3 times revenue, 46.8 times EBITDA, and has no P/E multiple because it's roughly breakeven on the net income line. Here's a link to the company's first-quarter 2024 earnings release, and here's the most recent investor presentation from November 2022.

This chart from the latter shows Kura's strong unit growth (again, it's now up to 56 locations in the U.S.), with plans to grow to 300:

Revenue growth has been strong, and the company said it had restaurant-level operating profit equal to 19.6% of sales in the first quarter (though overall it's breakeven mainly due to building out overhead to support growth):

So, is Kura the next differentiated ethnic food restaurant concept like Chipotle Mexican Grill (CMG) or yet another silly fad like Macheezmo Mouse (which really was a public company)?

I don't know – which is why I'm neither recommending it nor putting it on my list of stocks to avoid.

Kura is clearly a bad short: It's a unique concept run by experienced operators, so it could grow significantly from its small unit base and market cap today.

But the track record of richly valued restaurant concepts is abysmal, so I doubt I'm ever going to get comfortable with this stock...

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.