Nathan's Famous, Inc.’s (NATH Quick QuoteNATH - Free Report) investors have been experiencing some short-term gains from the stock of late. Shares of the branded licensor, wholesaler and retailer of products, which is currently operating from Jericho, NY, have gained 14.6% in the past three months, outperforming the industry’s 0.9% rise. In the same time frame, the stock also outperformed the sector and S&P 500’s 3.6% and 3.7% declines, respectively.

A major development of NATH in recent months includes the announcement of its promising third-quarter fiscal 2025 results in February. The company reported robust improvement of the top and bottom lines in the fiscal third quarter. Strength in all its segments was also recorded.

Per management, the robust quarterly performance resulted from strategic pricing actions, improved licensing revenues, and operational efficiencies. In the Branded Product segment, revenue growth from higher volumes and prices offset increased beef costs. Management also believes that strong consumer demand supported revenue growth in both the product licensing and restaurant operations segments. NATH also emphasized its commitment to maintaining operational discipline and leveraging its brand equity for sustainable growth.

NATH’s Three Months Price Comparison

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Over the past three months, the stock’s performance has remained strong, outperforming that of its peers like Ark Restaurants Corp. (ARKR Quick QuoteARKR - Free Report) and Flanigan's Enterprises, Inc. (BDL Quick QuoteBDL - Free Report) . ARKR’s shares have plunged 6.7%, while BDL’s shares have gained 3% in the same time frame.

Despite several challenges within the restaurant industry, including rising food and labor costs, the favorable share price movement indicates that the company might be able to maintain the positive market momentum at present.

Nathan's Famous specializes in marketing its Nathan’s brand via various channels, including company-owned and franchised restaurants, a product licensing program and a Branded Product Program. These multiple growth drivers reflect robust growth potential.

NATH’s Strong Fundamentals Weigh In

Nathan's Famous continues to invest in digital marketing efforts, including social media and targeted advertising campaigns. The focus on digital ordering and delivery partnerships with major platforms such as DoorDash, UberEats, and GrubHub expands NATH’s customer reach and enhances convenience for consumers. These initiatives are aligned with changing consumer behaviors, where online and delivery sales have grown significantly.

Nathan’s Famous benefits from a high-margin licensing business, primarily through its agreement with Smithfield Foods, Inc. The company earns stable royalties from retail sales of its branded hot dogs and sausages, which provide a consistent revenue stream. The licensing revenue has grown, particularly with Smithfield’s foodservice program, which has increased its contributions. This arrangement allows NATH to leverage a well-established partner with national distribution and marketing capabilities while maintaining a steady income source with minimal operational costs.

Nathan’s Famous maintains a strong franchising network, which provides stable royalty income. The company has been opening new franchised locations, including internationally, which diversifies revenue streams. Additionally, franchisees contribute to advertising efforts, reducing the company’s marketing burden while expanding brand awareness. NATH’s ability to attract experienced franchise operators strengthens the sustainability of this revenue stream.

Nathan’s Famous’ products are sold in high-traffic venues such as sports stadiums, airports and major retail chains. The brand has sponsorships with major sports franchises, including the New York Yankees, Brooklyn Nets and Dallas Cowboys, which enhance brand exposure. This strategy aligns NATH’s with premium venues, reinforcing its position as a recognized and trusted brand while increasing sales through captive audiences.

Challenges Ahead of Nathan's Famous

Nathan’s Famous faces challenges related to rising commodity costs, particularly beef and beef trimmings, which have experienced price volatility due to inflationary pressures and supply chain disruptions. If the company is unable to pass these cost increases onto customers, it could negatively impact margins. Additionally, NATH’s reliance on Smithfield Foods, Inc. for its licensing revenue and hot dog supply poses a significant risk. Any disruption in this partnership, whether due to operational issues or changes in contract terms, could materially affect its revenue streams and overall business stability.

NATH’s Stock Valuation

Nathan’s Famous’ trailing 12-month EV/Sales of 2.8X is lower than the industry’s average of 4.9X but higher than its five-year median of 2.7X.

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Our Final Take

There is no denying that Nathan’s Famous sits favorably in terms of core business strength, earnings prowess, robust financial footing and global opportunities. The stock’s strong core growth prospects present a good reason for existing investors to retain shares for potential future gains. New investors are also likely to be motivated to add the stock following the current surge in share prices.

For those exploring to make new additions to their portfolios, the valuation indicates superior performance expectations compared with its industry peers. It is still valued lower than the industry, which suggests potential room for growth if it can align more closely with overall market performance. However, if investors are already holding the stock, it would be prudent to hold on to it at present.