What Happened:

Shares of burger restaurant chain Red Robin (NASDAQ:RRGB) fell 17.6% in the morning session after the company reported second-quarter earnings results. Although revenue beat, adjusted EBITDA missed expectations and margin declined year on year. Guidance was bad and a big reason why shares are down. The company lowered its full-year revenue guidance, and adjusted EBITDA guidance for the same period missed expectations. Management attributed the weak results to a slowdown in the restaurant industry, which more than offset internal initiatives to accelerate growth. Overall, this was a weak quarter.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Red Robin? Access our full analysis report here, it’s free.

What is the market telling us:

Red Robin’s shares are very volatile and over the last year have had 43 moves greater than 5%. But moves this big are very rare even for Red Robin and that is indicating to us that this news had a significant impact on the market’s perception of the business.

The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 15.5% on the news that the company reported fourth-quarter results with same-store sales falling below expectations, though revenue beat. In addition, its EPS missed, and its full-year revenue guidance was below Wall Street's estimates. The discontinuation of virtual brands (due to weak profits) introduced in 2020 is expected to be a headwind to topline growth until Q3'2024. The company also attributed some of the weaknesses to removing "deep discounting marketing programs." However, taken together, these changes should drive profitability in the near term. Overall, this was a mediocre quarter for Red Robin.

Red Robin is down 62.8% since the beginning of the year, and at $4.41 per share it is trading 65.1% below its 52-week high of $12.63 from December 2023. Investors who bought $1,000 worth of Red Robin’s shares 5 years ago would now be looking at an investment worth $126.34.

When a company has more cash than it knows what to do with, buying back its own shares can make a lot of sense–as long as the price is right. Luckily, we’ve found one, a low-priced stock that is gushing free cash flow AND buying back shares. Click here to claim your Special Free Report on a fallen angel growth story that is already recovering from a setback.