Nathan's Famous, Inc.’s (NATH Quick QuoteNATH - Free Report) investors have been experiencing some short-term losses from the stock of late. Shares of the branded licensor, wholesaler and retailer of products, which is currently operating from Jericho, NY, have lost 9.8% in the past three months against the industry’s 2.8% growth. In the same time frame, the stock has also underperformed the sector and the S&P 500’s 1.4% loss and 3.5% gain, respectively.

A major development for NATH in recent months is its promising second-quarter fiscal 2026 results reported in November. The company recorded year-over-year revenue growth, driven primarily by strength in the Branded Product Program. Despite improved sales, profitability declined, reflecting elevated beef and other input costs that pressured margins.

Management noted that higher average selling prices and increased volumes supported branded product performance, partially offsetting cost inflation. Franchise operations benefited from higher restaurant sales and continued franchise openings during the period. However, results at company-owned restaurants were mixed, with stronger performance at Coney Island locations offset by softer sales at certain other locations.

NATH’s Three Months Price Comparison

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Over the past three months, the stock’s performance has remained relatively resilient, outperforming that of its peers like Ark Restaurants Corp. (ARKR Quick QuoteARKR - Free Report) . However, it underperformed its other peer, Flanigan's Enterprises, Inc. (BDL Quick QuoteBDL - Free Report) . ARKR’s shares have plunged 16.4%, while BDL has lost 4.3% in the same time frame.

Nathan’s Famous did not provide formal financial guidance but offered a cautious qualitative outlook. Management highlighted continued momentum in the Branded Product Program, supported by pricing actions and disciplined execution, while noting ongoing pressure from elevated beef and labor costs. The company acknowledged mixed performance at company-owned restaurants and emphasized a focus on cost management, operational efficiency and leveraging brand strength to navigate inflationary and macroeconomic uncertainties.

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.

Challenges Ahead for Nathan's Famous

One key factor weighing on Nathan’s Famous stock is persistent commodity cost inflation, particularly related to beef and beef trimmings. Management acknowledged that while pricing actions and higher volumes supported revenue growth in the Branded Product Program, elevated input costs pressured operating margins and profitability. NATH also noted uncertainty around its ability to fully pass through future cost increases, leaving results exposed to ongoing volatility in raw material prices.

Another overhang is Nathan’s Famous’ high dependence on licensing and supply partners, especially its agreement with Smithfield Foods. Management emphasized that a significant portion of licensing revenue and overall profitability is tied to this relationship. Any adverse changes in partner performance, retail demand, or contract terms could materially impact financial results, limiting diversification and increasing concentration risk.

Additionally, inconsistent performance across company-owned restaurants continues to weigh on Nathan’s Famous’ overall results. Management highlighted mixed trends, with stronger performance at certain flagship locations offset by weaker sales at others. This uneven restaurant-level performance underscores ongoing challenges related to traffic variability, location-specific demand and operating leverage, which can affect revenue stability and margin visibility over time.

NATH’s Strong Fundamentals Aid

Nathan’s Famous benefits from a scalable, asset-light business model anchored by its Branded Product Program and licensing operations. Management highlighted continued momentum driven by pricing actions, volume growth and brand strength, supporting cash generation despite cost pressures. Additionally, ongoing franchise expansion and a shareholder-friendly capital return approach support the stock, as higher franchise sales, new openings and regular dividend payments underscore confidence in the brand’s long-term cash flow potential and business durability.

Nathan's Famous’ Stock Valuation

Nathan’s Famous’ trailing 12-month EV/Sales of 2.6X is lower than the industry’s average of 4.2X.

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Ark Restaurants and Flanigan's Enterprises’ trailing 12-month EV/Sales currently stand at 0.1X and 0.3X, respectively.

Our Final Take on NATH

Nathan’s Famous continues to benefit from a resilient, asset-light business model supported by its Branded Product Program, licensing operations and franchise network, which provide stable cash generation and brand-driven growth opportunities. While cost pressures and uneven restaurant performance temper near-term visibility, the company’s disciplined operations, strong brand equity and focus on capital returns support its longer-term fundamentals.

From a valuation perspective, NATH suggests that expectations remain conservative despite the company’s durable business model. This valuation gap offers some downside support and potential upside if execution improves. However, given ongoing margin pressures and mixed segment trends, the risk-reward profile remains balanced. Accordingly, maintaining a hold stance appears prudent for existing investors, while prospective investors may await clearer signs of margin stabilization before initiating positions.