Burger King faces tough stock prospects

At first blush, Burger King’s recently reported fourth-quarter results look downright tasty, with earnings topping analysts’ estimates.

When looking deeper into the report, however, Burger King’s results didn’t quite hit the spot. Sales trends remain dismal. Fourth-quarter sales fell 15.8 percent versus the year-ago quarter, and global sales at locations open a year or more decreased 2.4 percent. U.S. and Canadian restaurants saw a decline of 4.5 percent. Still, for fiscal 2009, the company achieved some success, including worldwide sales growth of 1.2 percent at units open a year or more and a 28 percent increase in operating cash flow.

Management’s near-term outlook was less than reassuring, though. It declined to provide expected numbers for fiscal 2010, citing “consumer uncertainties,” but reiterated annual long-term growth targets of 6 to 7 percent for revenue and 15 percent for EPS.

The stock looks reasonably priced based on next year’s earnings estimates, with a forward P/E ratio of less than 13. Unfortunately, with sales trends and operating expenses moving in the wrong direction, analysts may become more pessimistic in the months ahead.

For those seeking appetizing quick-serve restaurant stock, McDonald’s or Yum! Brands may be preferable. Either will quench your thirst for international growth and is better positioned for the weak consumer demand in the U.S.

Ask the Fool

Q: I’m debt-free except for my mortgage, and I have retirement savings and emergency accounts set up. I now find myself with an extra $400 per month. Is it smarter for me to pay down my mortgage faster with it, or to invest it in a stock market index fund? – S.R., Montreal

A: One way to look at the question is to consider your mortgage interest rate. If you’re paying 6 percent, then any extra principal you pay off will save you 6 percent in interest payments – which is like earning a 6 percent return. Next, think about how much you expect to earn in stocks. If you expect a 10 percent return, then that’s clearly more compelling than the 6 percent. Remember, though, that the 6 percent is much more of a sure thing than the 10 percent.

Paying off your mortgage early is often worthwhile – especially if you’re nearing retirement, as it’s best not to be facing mortgage payments in retirement.

My dumbest investment

Since I started investing in October 2003, I have made plenty of mistakes. Thankfully, I have had more winners than losers. One of my losers was Krispy Kreme. I doubled down when it was already down 50 percent, and it proceeded to fall another 70 percent. I doubled down because I saw a picture of a famous investor holding a Krispy Kreme doughnut. I learned that a yummy product isn’t always tied to a yummy stock. If only I had bothered to look at the cash flow statement, I would have noticed that the company’s free cash flow was diminishing – an obvious red flag. – Felix E., Singapore

The Fool responds: Those are great lessons. Lots of failing companies still have customers and even fans – but that’s not enough of a reason to invest in them. Even strong and growing companies with loyal customers can be poor investment choices. You’re smart to examine financial statements now – they can tell you a lot about a company’s health and performance.