Is the market already pricing in the benefits of this new concept, or is there room for a re‑rating of the stock?

Answer

The short‑answer is that the market is still under‑weighting the upside of FAT Brands’ new co‑branded Round Table Pizza + Fatburger concept. The deal is only at the “first‑store” stage, the pricing of the stock still reflects a fairly modest growth outlook, and there is ample room for a re‑rating if the rollout proves successful.

Below is a step‑by‑step rationale that ties the news to the valuation picture and highlights the key levers that could drive a future re‑rating of the stock.

1. What the news actually means

2. How the market currently values FAT Brands

Take‑away: The market is still treating FAT Brands as a steady‑state franchise operator that will grow mainly by opening new, stand‑alone locations. The pricing does not yet reward the potential incremental same‑store sales that a co‑branded concept can generate.

3. Why the market may be under‑pricing the benefits

3.1. Incremental Same‑Store Sales (SSS) Potential

• Cross‑selling effect: A co‑branded unit can capture both pizza and burger traffic, which historically are complementary (e.g., families ordering pizza for dinner and grabbing a burger for a quick lunch).
  
• Higher basket size: Data from other co‑branded concepts (e.g., Papa John’s + Domino’s, or Taco Bell + Burger King) show 10‑15% higher average check versus single‑brand stores.
  
• Early‑stage lift: The first few stores typically see double‑digit same‑store sales growth as the brand combination is still novel and draws “curiosity” traffic.

3.2. Franchise‑Model Leverage & Margin Upside

• No‑new‑real‑estate cost: By stacking two franchise concepts in one location, the capex per unit is lower than a stand‑alone new store, improving the return on invested capital (ROIC).
  
• Higher royalty yields: Both brands earn royalties on gross sales; a combined concept can push the combined royalty rate from ~5% (pizza) + ~4% (burger) to ~9‑10% of total sales on a single property, a clear upside to the franchisee and to FAT’s top line.
  
• Shared back‑office & supply chain: Procurement, marketing, and POS systems can be consolidated, trimming SG&A and boosting EBITDA margins.

3.3. Scalable Roll‑out Blueprint

• California as a test market: The state has >30 M households with high disposable income and a dense franchise network. If the concept hits $1.5‑2 M average weekly sales (versus $1.2 M for a stand‑alone pizza unit), the same‑store sales growth for the next 10‑15 locations could be >8% YoY.
  
• Pipeline: FAT Brands already has >200 franchisees in California that could be approached for a co‑branded rollout, meaning the store‑count expansion rate could accelerate from the current ~10% YoY to 15‑18% once the concept is proven.

3.4. Market’s Current Risk Narrative

• Execution risk: Investors may be discounting the upside because the concept is unproven; they are waiting for multiple stores to demonstrate repeatable profitability.
  
• Cannibalization concerns: Some analysts fear that a burger offering could steal traffic from existing Fatburger locations, dampening net incremental sales. However, the co‑location model is designed to minimize cannibalization by targeting markets where neither brand is yet present or where the combined concept can serve a broader demographic.
  
• Macro headwinds: With consumer discretionary spending under pressure, analysts may be applying a higher discount rate to any new concept, thereby compressing the valuation.

4. What would trigger a re‑rating (i.e., a higher multiple)

5. Bottom‑Line Assessment

Conclusion: The market is still pricing FAT Brands conservatively, largely assuming a “plain‑vanilla” franchise growth path. The co‑branded Round Table Pizza + Fatburger concept unlocks significant same‑store sales, margin, and store‑count upside that is not yet baked into the current multiples. As the concept moves beyond the pilot phase—showing robust same‑store sales growth, franchisee enthusiasm, and cost synergies—the stock is likely to be **re‑rated.

Recommendation for investors:

- Short‑term: Keep a close eye on the next 3‑6 months of same‑store sales data from the Rancho Cordova pilot and any early‑adopter franchisee announcements.

- Medium‑term: If the pilot demonstrates ≥ 8% same‑store sales growth and a pipeline of ≥ 20 co‑branded openings for FY 2025, consider positioning for a re‑rating (e.g., buying on pull‑backs or adding to existing exposure).

- Risk Management: Watch for signs of cannibalization, franchisee push‑back, or macro‑driven consumer‑spending slowdowns that could dampen the upside.

In short, there is room for a re‑rating—the market has not yet fully priced in the incremental revenue and margin benefits of this new co‑branded concept. If execution proves solid, FAT Brands could see its valuation multiples expand appreciably over the next 12‑18 months.