What goes up must come down, after peaking
What a difference a few months can make. Franchises on the public markets could seemingly do no wrong last year. In 2013, franchises we track on this page were up nearly 49 percent.
The shine is definitely off. Franchise stocks are down 5 percent since March. As of mid-April, they’re down 3 percent on the year. Twenty-two of the franchises we track are down 4 percent or more this year.
The reason has nothing to do with performance, even though many businesses have had a tough first quarter. Instead, it’s a realization by investors that stocks are fully valued, if not overvalued. Broader stock market indices hit the skids over the past month. The S&P 500 fell 3 percent and is down 2 percent so far this year. The Dow Jones Industrial Average is down 8 percent.
Last year’s performance was the S&P 500’s best since 1997. The Dow had its best year since 1999. Those were the “Irrational Exuberance” years, as dubbed in late 1996 by former Fed Chairman Alan Greenspan.
The problem now is that stocks have reached peak values, and have to come down. A number of stocks in the franchise sector reached all-time highs after their run-up.
Stock in Minneapolis-based barbecue chain Famous Dave’s nearly doubled last year. It’s up 34 percent this year, even with a 15 percent decline over the past month. The chain’s stock hit an all-time high of $31.99 in March, thanks to the naming of former McDonald’s executive Ed Rensi to interim CEO.