El Pollo Loco Stock Slips 24% in 6 Months: Should You Hold or Exit?

Shares of El Pollo Loco Holdings, Inc. LOCO have declined 23.5% over the past six months compared with the Zacks Retail – Restaurants industry’s fall of 8.7%. The stock has underperformed the Zacks Retail-Wholesale sector’s and the S&P 500’s decline of 9% and 13.5%, respectively.Investor sentiment surrounding El Pollo Loco has been weighed down by escalating macroeconomic uncertainty, including concerns over new tariff impacts, recession risks and margin pressures across the restaurant industry.LOCO's 6-Month Price PerformanceImage Source: Zacks Investment ResearchFrom a technical perspective, El Pollo Loco stock is currently trading below its 50-day moving average, signaling a bearish trend.LOCO Stock Trades Below 50-Day Moving AverageImage Source: Zacks Investment ResearchAlthough the short-term challenges are hard to ignore, there could be a hidden opportunity for patient investors. With El Pollo Loco shares pulling back sharply, some might see this as a chance to buy in. But is now really the right time to take the plunge? Let’s take a closer look.Tariffs and the Broader Restaurant LandscapeInvestor sentiment across the restaurant space has taken a hit due to newly announced tariffs by the Trump administration, targeting imported food items like wine, meats, and dairy products. These cost pressures are causing ripple effects throughout the industry, with restaurants large and small scrambling to reassess their supply chains and menu pricing. According to reports from CNBC, NBC Montana and Verdict Foodservice, the fear of recession and inflation-related price hikes is prompting investors to re-evaluate exposure to globally dependent restaurant stocks.Prominent restaurant chains that rely heavily on imported ingredients have been particularly vulnerable. Starbucks Corporation SBUX is facing higher coffee bean costs, Chipotle Mexican Grill, Inc.’s CMG avocado supply chain could be disrupted, and McDonald's Corporation MCD faces exposure through beef and cheese imports. Smaller restaurants are calling the impact a "roll of the dice," as supply chain volatility forces them to either absorb costs or risk alienating price-sensitive customers. The overall outlook for the sector has become clouded by uncertainty and compressed margins.Downward Earnings Estimate Revision Ail LOCO Stock ProspectsEl Pollo Loco’s fiscal 2025 earnings per share (EPS) estimates have been revised downward, dropping from 95 cents to 93 cents over the past 60 days. This downward trend reflects weakening analyst confidence in the stock’s near-term prospects.Image Source: Zacks Investment ResearchNevertheless, the company is likely to report strong earnings, with projections indicating 4.5% year-over-year growth in fiscal 2025. Conversely, industry players like Chipotle and McDonald's are likely to witness a rise of 14.3% and 4.5%, year over year, respectively. Meanwhile, Starbucks’ 2025 earnings are projected to fall 10.3% year over year.Can LOCO Overcome the Headwinds?El Pollo Loco may be facing near-term challenges, but investors have plenty of reasons to stay confident in the stock’s long-term potential. The company is taking decisive steps to reignite growth by getting back to what made it a regional favorite: crave-able fire-grilled chicken, fresh hand-prepared ingredients, and a better-for-you menu that resonates deeply with health-conscious consumers. Through its focused five-pillar strategy, El Pollo Loco aims to modernize its brand, drive operational consistency, and deliver an enhanced customer experience.As part of its effort to reintroduce the brand to both loyal and lapsed consumers, El Pollo Loco has sharpened its marketing communications, reminding customers of its unique positioning: affordable, fresh and delicious meals anchored around its signature citrus-marinated chicken. Consumer research continues to validate the strength of the company’s food quality, and positive feedback suggests that its message is landing well.El Pollo Loco has taken a strategic approach to its cost-saving measures, ensuring that food quality and customer experience are enhanced throughout the process. The company made strategic hires, including a new chief development officer, to streamline operations and reduce unit build costs. These efforts are expected to improve franchise growth and financial performance in the coming years.In 2025, the company aims to enhance customer satisfaction by strengthening service standards and accountability. To achieve this, LOCO has implemented a new customer-feedback system in partnership with a leading provider, enabling more effective benchmarking against industry peers and refining its closed-loop feedback process. By leveraging these insights, the company is focused on improving service speed, accuracy and consistency. By reinforcing its brand identity, boosting customer engagement through targeted initiatives, and optimizing operations, El Pollo Loco is positioning itself to deliver sustainable growth over time.Valuation Insights for LOCO StockLOCO stock is currently trading at a discount. El Pollo Loco is currently trading at a forward 12-month price-to-sales (P/S) multiple of 0.61X, well below the industry average of 3.76X, reflecting an attractive investment opportunity. Then again, other industry players, such as Starbucks, Chipotle and McDonald's, have P/S ratios of 2.34X, 4.79X and 7.99X, respectively.Image Source: Zacks Investment ResearchAnalysts’ Expectations on El Pollo Loco’s StockAnalysts maintain a cautiously optimistic outlook on El Pollo Loco stock. Based on short-term price targets from four analysts, the average price target for El Pollo Loco is $14.75, suggesting a potential upside of 45% from the last closing price of $10.17. Price forecasts range from a low of $13.00, indicating a 27.83% upside, to a high of $18.00, which represents a possible 77% upside. Meanwhile, El Pollo Loco carries a solid average brokerage recommendation of 2.20 on a scale of 1 (Strong Buy) to 5 (Strong Sell), reflecting a generally favorable consensus. Of the five brokerage firms covering the stock, two analysts rate LOCO as a Strong Buy, underscoring confidence in LOCO’s growth potential.LOCO Stock Investment StrategyEl Pollo Loco remains a recognizable player in the quick-service restaurant industry, supported by its brand loyalty, localized menu offerings, and focus on operational improvements. While the recent stock weakness has been driven by macroeconomic uncertainty, tariff-related cost pressures and sector-wide margin challenges, the company's efforts to streamline operations, enhance customer engagement and maintain menu innovation provide a foundation for potential long-term resilience.El Pollo Loco’s ability to manage costs, adapt to evolving consumer preferences, and maintain a differentiated brand identity should support gradual recovery over time. However, near-term headwinds — including recession fears, supply chain volatility, and downward earnings revisions — could limit immediate upside potential.Given these factors, existing investors may find it reasonable to hold on to this Zacks Rank #3 (Hold) stock as El Pollo Loco navigates near-term challenges and works toward stabilizing its performance. Meanwhile, new investors may prefer to wait for clearer signs of momentum before considering an entry, as external pressures could continue to weigh on the stock in the short term.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Starbucks Corporation (SBUX): Free Stock Analysis Report McDonald's Corporation (MCD): Free Stock Analysis Report Chipotle Mexican Grill, Inc. (CMG): Free Stock Analysis Report El Pollo Loco Holdings, Inc. (LOCO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks