The Québec-based company is a franchisor of several restaurant brands, including Thai Express, Sushi Shop, and Bâton Rouge, operating more than 7,000 locations.
On November 17, the company announced that it had hired a financial advisor "to identify, review and evaluate potential strategic alternatives with a view toward continuing to enhance shareholder value. The Company is exploring a range of such alternatives including, but not limited to, a sale of all or part of the company as well as continuing to execute its current business plan."
Before this announcement, MTY's shares were trading at less than $34. At the beginning of 2023, the stock was valued at close to $70; today, it is nearly $42.
I do not know how the MTY situation will resolve: Will the company be acquired? If so, at what price? Will it sell some of its brands? Or perhaps no transaction will be announced in the coming months?
However, putting myself in the shoes of its founder, Mr. Stanley Ma, I believe I would be quite frustrated with the stock market and the valuation it assigns to the company. Mr. Ma founded the company in 1979 and is the chairman of the board and the largest shareholder, owning nearly 3.2 million shares, which represent 13.76% of the total (as of March 19, 2025).
At a share price of less than $34 just before the November 17 announcement, the stock was trading at a price-to-earnings ratio of approximately 8.0. A few months later, as recent newspaper articles have reported conditional offers of more than $52 per share, the stock has appreciated by over 25% compared to its price prior to the November strategic announcement. Even so, despite this rebound, the stock is still trading at around 10 times earnings per share of $4.20 generated over the past 12 months.
Being publicly listed is not always a paradise for a company's largest shareholders. While the stock market often assigns what I would consider an appropriate valuation to companies, it can also become euphoric or, conversely, depressed toward a company or an entire sector.
The following chart shows MTY's forward price-to-earnings ratio over the past 10 years. Excluding the pandemic period in early 2020, you will note that the multiple assigned by the stock market to the company was around 20 times forward EPS before the pandemic and then declined almost continuously after that, reaching a historic low of close to 8.0 a few months ago.
However, I would add that the company's financial performance in recent years has not lived up to expectations, although it has been acceptable.
For some time, investors seem to be fixated on stocks of companies operating in sectors benefiting from artificial intelligence or in natural resources, particularly gold. In contrast, many stocks of companies operating in sectors far removed from these areas (or that could be affected by AI) are being penalized, often unfairly. This appears to be the case for MTY.
Perhaps Mr. Ma will be able to ease his frustration by selling MTY at a high price in the coming months through a takeover bid (public tender offer). That is what I wish for him, as well as for all MTY shareholders, as the company's stock does not seem to be receiving the respect it deserves in the market.
To be continued.
Philippe Le Blanc, CFA, MBA
Chief Investment Officer at COTE 100
COTE 100 owns shares of MTY in certain of its portfolios under management.
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