Shares of El Pollo Loco Holdings, Inc. (LOCO Quick QuoteLOCO - Free Report) have rallied 53.4% in the past year, reflecting improving investor confidence in the company’s turnaround efforts and longer-term growth prospects. The stock’s rally has been supported by better operating execution, strengthening restaurant-level profitability and growing momentum across the business. The stock has outperformed the Zacks Retail - Restaurants industry’s 12.8% drop, the broader Zacks Retail and Wholesale sector’s 4.8% fall and the S&P 500 Index’s 15.5% gain over the same period.

The company is benefiting from a combination of menu innovation, digital and loyalty engagement, operational discipline and an accelerating new-unit development strategy. Management has also become more optimistic about the full-year outlook, supported by healthy comparable sales trends and improving profitability. Still, sustaining the upside will depend on El Pollo Loco’s ability to convert these initiatives into durable traffic growth, preserve margins amid cost pressures and successfully expand beyond its core California footprint.

LOCO’s One-Year Price Performance

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For additional peer context, Shake Shack Inc. (SHAK Quick QuoteSHAK - Free Report) has declined 36.3% over the past year, while Darden Restaurants, Inc. (DRI Quick QuoteDRI - Free Report) and Brinker International, Inc. (EAT Quick QuoteEAT - Free Report) have gained 3.6% and 59.6%, respectively.

Menu Innovation Broadens LOCO’s Appeal

A major part of El Pollo Loco’s growth strategy centers on creating more reasons for customers to visit beyond its core fire-grilled chicken offering. The company’s Loco Tenders provided an encouraging example. Management noted that the product attracted new customers, particularly younger consumers, while generating demand during snacking and late-evening occasions. The company is now exploring ways to make tenders a more permanent part of the menu and expand their use into wraps, salads and other portable offerings.

Loaded Quesadillas and the Chata coffee platform are also helping LOCO expand into portable meals, beverages and underpenetrated dayparts. Meanwhile, additional burrito bowls and seasonal beverage and dessert offerings add depth to the innovation pipeline. This broader menu strategy could improve visit frequency and reduce the brand’s reliance on traditional lunch and dinner occasions.

Marketing is reinforcing these efforts. The “Let’s Get Loco” campaign, sports-related advertising and brand partnerships are aimed at increasing relevance among younger consumers and expanding awareness beyond El Pollo Loco’s established customer base.

Digital and Loyalty Could Support Traffic Growth

Digital engagement represents another important growth lever. Digital sales accounted for roughly 28% of system sales in the second quarter of 2026 and increased 13% year over year. More importantly, Loco Rewards members visited approximately three times as often annually as non-loyalty customers.

Targeted loyalty offers based on purchase behavior have also helped drive both frequency and check growth. Management said growth in these metrics among loyalty members outpaced that of non-loyalty guests by more than twofold.

This capability gives El Pollo Loco a potentially more efficient way to drive repeat visits without depending entirely on broad-based discounting. Continued expansion in delivery, catering and other off-premise occasions could provide another avenue for incremental sales.

Unit Expansion Opens a Longer-Term Growth Runway

The restaurant pipeline may be the most important factor supporting the long-term investment case. El Pollo Loco expects to open 18-20 restaurants system-wide during 2026, nearly doubling its 2025 pace. Management expects most new locations to be outside California as it works toward becoming a national brand.

The company recently entered Idaho, its 10th U.S. state, after adding Washington and New Mexico over the preceding two years. Management indicated that newer-market restaurants have generally opened strongly, with many generating sales above the system average.

Margin Progress Encourages, but Risks Remain

Operational execution has strengthened alongside sales growth. Restaurant-level margin reached 19.5% in the second quarter, within management’s long-term target range of 18-20%. Labor productivity, waste reduction and disciplined pricing remain central to the margin strategy.

Still, risks should not be overlooked. System-wide transactions declined 0.9% in the second quarter, meaning comparable sales growth remained partly dependent on higher average checks. Commodity inflation, particularly in produce, also pressured food costs, while packaging, oil and delivery-related expenses remain areas to watch.

Geographic concentration is another consideration. The greater Los Angeles market generated more than 70% of revenues during the first half of 2026, leaving the business sensitive to regional economic conditions until expansion meaningfully diversifies its footprint.

Earnings Estimate Trend of LOCO

LOCO’s earnings estimates for 2026 and 2027 have moved upward over the past 60 days to 99 cents and $1.08 per share, respectively. The revised estimates imply year-over-year earnings growth of 1% in 2026, followed by a 9.6% rise in 2027, suggesting expectations for a notable acceleration in earnings growth next year.

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Meanwhile, earnings for Shake Shack are projected to decline 14.4%, while Darden Restaurants and Brinker International are projected to grow 5.6% and 22.5%, respectively, this year.

LOCO Stock Trades at a Discount

LOCO stock is currently trading at a discount to its industry peers, with a forward 12-month price-to-earnings ratio of 13.45, as the trend lines below suggest. The discounted valuation indicates that investors remain somewhat cautious despite El Pollo Loco’s improving restaurant-level profitability, expanding digital engagement, menu innovation and accelerating unit-growth strategy. However, following the stock’s strong run over the past year, further upside will increasingly depend on sustained comparable sales growth, continued margin discipline, successful new-unit expansion and stronger traffic trends.

LOCO P/E Ratio (Forward 12 Months)

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Can El Pollo Loco Extend Its Strong Stock Rally?

El Pollo Loco’s strong stock performance over the past year reflects improving confidence in the company’s operating momentum and growth strategy. Menu innovation, stronger digital and loyalty engagement, improving restaurant-level profitability and accelerating unit development are supporting the outlook. Expansion into new markets, particularly outside California, could also broaden the company’s growth runway and reduce its reliance on its core geographic base.

The stock’s valuation remains supportive of the investment case. LOCO trades at a forward 12-month price-to-earnings ratio of 13.45, representing a discount to its industry peers. This valuation appears attractive given the company’s improving operating execution and expanding development pipeline. However, sustained upside will depend on stronger traffic trends, continued margin discipline and successful execution of new-store expansion. Commodity inflation and geographic concentration remain risks worth monitoring.

The earnings revision trend is also encouraging. Earnings estimates for 2026 and 2027 have moved higher over the past 60 days, with earnings expected to rise modestly in 2026 before accelerating in 2027. Overall, LOCO’s attractive valuation, positive estimate revisions and improving growth prospects support the bullish case. Given its Zacks Rank #2 (Buy), the stock appears well positioned for further upside.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.