Subway Stock: 5 Ways to Invest in Subway Stock

Buying Stock in Subway is a Problem Because it is a Privately Held Company. Here are 5 Alternative Ways to Profit from Subway.

Subway is one of many companies where management chooses not to issue stock. Subway does not issue stock because it makes money by selling franchises and collecting royalties from franchisees.

Subway Stock - How to Invest In Subway
Subway Stock – How to Invest In Subway

Subway Stock

Nobody can buy Subway stock because the company that franchises Subway is privately-held. Subway IP Inc. is privately-held and not traded on any stock exchange. Individuals can purchase Subway stores because each Subway franchise is individually owned and operated.

Subway Stock Price / Ticker

Subway does not have a stock price or a ticker on any exchange because it is privately-held and has not issued stock. Not issuing stock gives Subway management more control over the company. Laws require publicly traded companies to maintain elected boards of directors. Stockholders elect the board of directors, which can weaken management’s control.

In the United States, federal law requires publicly traded companies to divulge enormous amounts of information to the public. For instance, the U.S. Securities and Exchange Commission (SEC) requires publicly-traded companies to publish their financial data.

If an American company is publicly-traded, they post its financial reports on the SEC website. That enables investors and potential franchisees to see how much money a company makes.

Privately-held companies can keep most of their operations secret, giving a fast-food company a competitive advantage. Subway does not have to tell potential franchises how much money the company makes.

Investing in A Subway Franchise

A person must pay $15,000 in cash to buy a Subway franchise in the United States or Canada, Franchise.com. After paying the cash, each Subway franchisee must invest $102,000 and $264,000 to set up or buy the store.

Every Subway franchise pays Subway IP Inc. 12.5% of her or his franchise’s revenues in royalties each week, Franchise.com claims.

Subway does not need to issue stock because it can collect royalties and franchise fees. Subway can generate enormous revenues from the royalties and fees because there are over 21,000 Subway franchises in over 100 countries worldwide.

The Rise And Fall Of Subway

Companies Similar to Subway you can Invest in

Restaurant Brands International (NYSE: QSR)

Restaurant Brands (QSR) operates over 17,800 Burger Kings, 4,800 Tim Horton’s coffee and sandwich shops, and over 3,100 Popeye’s fried chicken franchises worldwide. Tim Horton’s is the largest fast-food brand in Canada and the second-largest coffee-shop chain in North America after Starbucks (SBUX).

Restaurant Brands makes money despite shrinking revenue growth. Restaurant Brands reported a quarterly gross profit of $791 million and a quarterly operating income of $417 million on September 30, 2020.

Restaurant Brands’ Revenue Growth Shrank by -8.3% in the quarter ending on September 30, 2020. Restaurant Brand’s revenue growth shrank by 25.14% in the quarter ending on June 30, 2020.

Restaurant Brands’ quarterly operating income grew from $243 million on June 30, 2020. The quarterly gross profit grew from $575 million on June 30, 2020.

Restaurant Brands’ income and gross profit are growing as its income and gross profit shrink.

Restaurant Brands revenues shrank during the 2020 Coronavirus Pandemic. Restaurant Brands International began 2020 with quarterly revenues of $1.479 billion on December 31, 2019. Those quarterly revenues shrank to $1.048 billion on June 30, 2020, and grew to $1.337 billion on September 30, 2020.

I think Restaurant Brands’ revenues show sales at Burger King, Popeye’s, and Tim Horton’s are recovering fast from coronavirus. We cannot compare those revenues to Subway’s because Subway IP Inc. is a privately-held company with no obligation to reveal its revenue numbers.

Restaurant Brands International retained most of its share value in 2020. Mr. Market paid $64.70 for QSR on January 2, 2020, and $61.95 for Restaurant Brands on December 18, 2020.

Restaurant Brands International is an excellent dividend stock that will pay a 52¢ quarterly dividend on January 5, 2021. In 2020, the quarterly dividend grew from 50¢ on January 3, 2020. Overall, Stock Rover estimates QSR paid a forward annualized dividend of $2.08 and a forward dividend yield of 3.35% on December 18, 2020.

I consider Restaurant Brands International a value investment in fast food because it makes money, retains share value, and pays an excellent dividend. The advantage of publicly-traded fast-food operators is that the financial numbers will tell you how much money those companies make.

The problem with privately-held franchise operations, such as Subway IP Inc, is that it is hard to tell how much money they make. Given that reality, a Subway franchise could be a poor investment.

Restaurant Brands International stock is a better investment than a Subway franchise because financial information is available. Another advantage to QSR stock is that you can sell the stock fast if it starts to lose money. Selling a franchise, particularly a money-losing restaurant, can be difficult.

A greater advantage to stock is that you will not have to do the work of managing a restaurant or invest $15,000 in franchise fees to buy it. Buying $15,000 worth of stock could be a better use of your money than buying a franchise.

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Starbucks Corporation (NASDAQ: SBUX)

Coffee-shop giant Starbucks (SBUX) is still one of the most successful franchises around. Starbucks’ revenues grew by $1.981 billion in the quarter ending on September 30, 2020.

Starbucks reported quarterly revenues of $4.222 billion on June 30, 2020, and quarterly revenues of $6.203 billion on September 30, 2020. The quarterly revenues are impressive because Stockrow estimates Starbucks’ revenue growth shrank by 8.06% in the quarter ending on September 30, 2020.

Starbucks revenue growth shrank by 38.12% in the quarter ending on June 30, 2020, and 4.92% in the quarter ending on March 31, 2020.

Starbucks makes money from those revenues. Starbucks reported a quarterly gross profit of $4.226 billion and a quarterly operating income of $558.4 million on September 30, 2020.

Starbucks’ quarterly operating income grew from a -$703.9 million operating loss on June 30, 2020. The operating loss coincided with the worst of the coronavirus pandemic. Starbucks reported a $487.4 million quarterly operating income on March 31, 2020.

Starbucks can generate enormous amounts of money during a pandemic. The coffee shop franchiser can also generate enormous amounts of cash. Starbucks reported a quarterly operating cash flow of $1.491 billion on September 30, 2020. The quarterly operating cash flow grew from -$367.7 million on June 30, 2020, and -$1.361 billion on March 31, 2020.

Starbucks reported a quarterly ending cash flow of $385 million on September 30, 2020. The quarterly ending cash flow fell from $1.939 billion on June 30, 2020, and rose from -$468.2 million on March 31, 2020.

Starbucks had $4.632 billion in cash and short-term investments on September 30, 2020. In 2020, Starbucks’ cash and short-term cash investments rose from $3.109 billion on December 31, 2019.

Starbucks had enormous value in the form of $29.735 billion in Total Assets on September 30, 2020. The Total Assets rose from $27.731 billion on December 31, 2019.

Starbucks’ enormous value included 31,256 stores worldwide in 2019, Statista estimates. Statista estimates that Starbucks operated 15,041 stores in the United States in 2019.

I consider Starbucks a value investment because Mr. Market reasonably priced its stock at $103.28 a share on December 18, 2020. In 2020, Starbucks’ share value rose from $89.35 to January 2, 2020.

Starbucks is an excellent dividend stock that paid a 45¢ quarterly dividend on November 10, 2020. That quarterly dividend grew from 41¢ on August 6, 2020.

Overall, Starbucks offered an annual dividend of $1.68 and a dividend yield of 1.63% on December 18, 2020. Dividend.com estimates.

I think the growth shows Starbucks could be the best publicly-traded franchise brand. I consider Starbucks an excellent stock that all investors need to investigate.

McDonald’s Corporation (NYSE: MCD)

Many people ask about Subway stock because of the high prices Mr. Market pays for better-known fast food-brands.

For example, Mr. Market paid $209.48 for McDonald’s (MCD) on December 21, 2020. In 2020, McDonald’s share price rose slightly from $200.79 on January 2 to $209.48 on December 21.

Many investors buy McDonald’s because it retains its share value. Another reason why investors buy McDonald’s is that it makes money. McDonald’s reported a quarterly gross profit of $2.905 billion and a quarterly operating income of $2.526 billion on September 30, 2020.

Unlike some fast-food brands, McDonald’s did not report an operating loss in 2020. McDonald’s reported a quarterly operating income of $1.725 billion, on June 30, 2020, for example. McDonald’s began 2020 with an operating income of $2.293 billion on December 31, 2019.

McDonald’s revenues rose in 2020. McDonald’s began 2020 with quarterly revenues of $5.140 billion on December 31, 2019. The quarterly revenues rose to $5.418 billion on September 30, 2020.12.21

McDonald’s business generates enormous amounts of cash. The company reported a $2.930 billion operating cash flow on September 30, 2020.

However, McDonald’s reported a quarterly ending cash flow of $428.10 million on September 30, 2020. The quarterly ending cash flow rose from -$2.124 billion on June 30, 2020.

The amount of cash McDonald’s can raise from financing is enormous. McDonald’s raised $3.533 billion in cash from financing in the quarter ending on March 31, 2020.

McDonald’s can easily pay those debts; it reported quarterly financing cash flows of -$2.269 on September 30, 2020, and -$1.58 billion on June 30, 2020.

A negative quarterly financing cash flow indicates a company is paying its debts.

The amount of cash at McDonald’s rose in 2020. McDonald’s had $3.683 billion in cash and short-term investments on September 30, 2020. The cash and short-term investments rose from $898.50 million on December 31, 2019.

McDonald’s cash is important because MCD pays an impressive dividend. The McDonald’s Corporation paid a $1.29 quarterly dividend on November 30, 2020. The quarterly dividend rose from $1.25 on September 15, 2020.

Overall, Stock Rover estimates MCD stock offered a $5.04 annual dividend and a dividend yield of 2.35% on December 31, 2020. I think the dividend makes McDonald’s an excellent income stock.

Growth is a problem at McDonald’s. Stockrow estimates McDonald’s revenue growth shrank in every quarter of 2020. The company had a quarterly revenue growth rate of -0.44% on December 31, 2019.

The quarterly revenue growth rate fell to -6.16% on March 31, 2020, and -30.47% on September 30, 2020. On September 30, 2020, the quarterly revenue growth rate rose to -1.53%.

Investors need to be careful with McDonald’s because I think the falling growth rate leads to a smaller safety margin. I believe McDonald’s makes money, but its moneymaking capacity is shrinking.

Potential Subway franchisees need to worry about the falling revenue growth at McDonald’s. I think the falling revenue growth shows McDonald’s, which I consider a far stronger brand than Subway, is losing market share.

Statista estimates there were 38,695 McDonald’s locations on earth in 2019. If McDonald’s growth shrinks with a footprint that large, I predict Subway will shrink.

If McDonald’s cannot retain share, Subway cannot retain market share.

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Shake Shack Inc. (NYSE: SHAK)

Shake Shack (SHAK) is one of several American burger chains that has a cult following. Its direct competitors include In-N-Out Burger and Red Robin Gourmet Burgers (NASDAQ: RRGB).

 Many investors buy Shake Shack because its business model is similar to the popular and privately-held In-N-Out Burger. In-N-Out Burger is so popular customers stood in line for 14 hours to buy burgers from its first Colorado locations, The New York Post claims.

The difference between In-N-Out Burger and Shake Shack is that Shake Shack is an urban chain that operates walk-in restaurants. In-N-Out-Burger, in contrast, is a suburban chain that operates only drive-thru restaurants.

A key difference between In-N-Out Burger and traditional burger chains, such as McDonald’s (MCD) and Burger King, is that In-N-Out Burger refuses to franchise. Shake Shack, like In-N-Burger, refuses to franchise. These companies refuse to franchise because management wants to retain control over the restaurants.

Retaining corporate control can ensure a higher level of quality and service. The corporation can fire an incompetent or lazy manager in a few minutes. The company has to buy out a bad franchisee, a process that can lead to an expensive legal battle.

Many investors buy Shake Shake because of its growth potential. The New-York-based chain only operates 275 locations in the United States and the United Kingdom.

I think investors need to avoid Shake Shack because it loses money. Shake Shack reported a quarterly operating income of -$6.8 million on September 30, 2020. The quarterly operating income fell from $490,000 on December 31, 2019.

Shake Shack’s revenue growth collapsed in 2020. The company began the year with a quarterly revenue growth rate of 21.86% in December 2019. Stockrow estimates the quarterly revenue growth rate fell to -39.30% on June 30, 2020, and -17.34% on September 30, 2020.

In 2020, Shake Shack’s revenues fell from $151.44 million on December 31, 2019, and $130.40 million on September 30, 2020. There is a little money at Shake Shack, however.

The company reported a $35.35 million quarterly gross profit on December 31, 2020. The quarterly gross profit fell to $22.76 million on September 30, 2020.

Shake Shack’s business generates almost no cash. The company reported quarterly operating cash flows of $10.51 million on September 30, 2020, and June 30, 2020. The quarterly operating cash flow fell from $16.81 million on December 31, 2019.

The quarterly ending cash flow at Shake Shack (SHAK) was $90,000 on September 30, 2020. Overall, Shake Shack reported $191.76 million in cash and short-term investments on September 30, 2020. The cash and short-term investments rose from $73.61 million on December 31, 2019.

Shake Shack gained some value in 2020; its total assets rose from $968.27 million on December 31, 2019, to $1.137 billion on September 30, 2020.

I consider Shake Shack a terrible stock because the company is small and makes tiny amounts of money. That gives Shake Shack a low margin of safety because it has small amounts of cash.

Ordinary investors need to avoid Shake Shack because it has a low margin of safety and pays no dividend. I think that makes Shake Shake a stock to watch rather than to buy.

The Danger From Fast Food

Fast food is a hard but popular area to invest in because most fast-food operators are privately held.

Dunkin Donuts, which owns Baskin-Robbins, went private in October 2020, when Inspire Brands Inc acquired it, Reuters reports. Inspire is a privately-held holding company that also owns the Sonic Drive-In burger chain and Subway’s direct competitor Arby’s. Arby’s is one of America’s most popular sandwich restaurants.

I think fast-food brands go private because they cannot make enough money to sustain the stock. Investors need to be leery of fast-food because it is an unstable business that can lose money fast.

Chains such as Subway and Shake Shack could be good places to eat, but they can make terrible investments.

Daniel G. Jennings is a highly-experienced freelance writer and blogger who lives and works in Colorado, USA. Jennings has written extensively about value investing, the stock market, retail, cryptocurrency, politics, marketing, technology, and many other subjects. His writing has appeared at Seeking Alpha, The Motley Fool, Geek Crunch Reviews, Empresa Journal, and many other websites. Jennings makes daily posts of his latest writing to www.MarketMadHouse.com

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