What Should I Do With My Single Largest Paper Loss Ever?
I have a system that has worked well for decades. But so far this name has not worked out well this time around. What's an investor to do when faced with this kind of predicament?
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
That is an extremely hard question to answer.
I have been touting and buying Jack in the Box JACK for some time now. All l have shown so far for has been market pain the likes of which I have never felt before. That says a lot when you consider that 2025 is my 47th year of trading.
I consider myself a very smart man. So does Mensa. I have a system that worked well for decades. You cannot fight facts, though, and JACK has not worked out well this time around, so far at least.
Ironically, JACK’s 69%, 14-month decline, came as the company increased EPS slightly from FY 2023 to FY 2024. Fiscal years end on the Sunday closest to September 30.
The decade from 2014 through 2024 saw JACK post large gains across all major business metrics. Management more than quadrupled the dividend while also retiring 51.2% of all shares outstanding. EPS grew by 153% cumulatively. Sales per share more than doubled. Growth like that should logically have rewarded JACK’s shareholders.
The stock, though, was 67.5% cheaper on Mar. 15, 2025 than where it closed exactly 10 years earlier.
JACK posted EPS of $3.00 in FY 2015, putting its forward P/E at a historically pricey 33.3x. Last Friday’s closing quote represents less than 5.9x this year’s estimate. Multiple contraction like that can torpedo any stock. It can also create some of the best buying opportunities you will ever see.
Changes in P/E work both ways. From today’s absurdly low P/E the most obvious direction will be a regression to the mean towards JACK’s normalized multiple of 17x to 19x.
I played successfully with JACK many times over the years.
JACK’s market action since peaking on July 31, 2023 has been horrific. I did not own it near the $100 level. I got long again again after it declined to the mid-$60s in April of 2024.
Why was that price point meaningful to me?
The broader market tanked during August through October of 2023. There were very few up days during that excruciating period. JACK was not immune. The stock retreated from $99.56 to $60.43, a 39.3% beatdown.
Around Halloween, it felt like a switch flipped. Almost everything started recovering brilliantly. By Jan. 10, 2024, the stock touched $86.20 intraday, up 42.6% from its late October nadir.
That said to me that the low $60s offered significant technical “support.” The EPS estimate back then was $6.30. Actual EPS in FY 2024 came in at $6.20.
Analysts from other sources were equally enamored of JACK shares in April 2024. Yahoo Finance carried an “undervalued” rating on JACK with a 12-month target of $87.56.
FASTgraphs called JACK’s normalized P/E as 17.4x. They then saw FY 2024 coming in at $6.37. A return to a normalized multiple justified setting a year-end 2024 price target nearing $111.
FASTgraphs noted that JACK had peaked between $93.12 to $124.53 during each full year from 2015 through 2023.
Research house Morningstar assigned JACK a 4-star (out of 5) BUY rating. It called present-day (April 5, 2024) fair value as $87.42.
After reviewing the data that were available to me back then I cannot find fault in my loving the stock in the spring of 2024. There was every reason to expect a sharp rebound in price.
Reading my past reasons for getting involved in JACK again makes me feel better. But it cannot remove the sting out of JACK’s plunge, however undeserving it might be.
I will now shift back to the present.
Despite posting the second-best earnings ever in FY 2024, JACK has plunged to a new post-Covid panic low. The first quarter of FY 2025 came in 23-cents ahead of estimates.
That marked the third straight quarter of exceeding analyst expectations.
Once again, I fail to find any significant “bad news”that would justify this major share-price decline.
California’s $20 per hour fast food minimum wage was implemented on April 1, 2024. JACK’s entire second half reflected that increase in wages paid out there. So did the recent Q1 FY 2025 report.
The last three quarters’ EPS reports (Q3 & Q4 FY 2024 and Q1 FY 2025) all beat despite that headwind.
What Is JACK Worth?
Other than its remarkably poor chart action, there is no actual news to abandon using regression to the mean when calculating a goal price or present-day fair value estimate.
The six pre-Covid years 2014 through 2019 saw average annual P/Es for JACK of 23.2x. Owning JACK whenever it ventured below 20x forward earnings worked out well with no exceptions in the decade running from 2014 through 2023.
“Should have sold” moments (red-starred above) came with JACK at 16.5x to 33.3x earnings in all years prior to 2024.
Recent year’s multiples (2019–2024) have centered around 14.5x.
Simply returning to that modest P/E would bring JACK up to about $80 by Dec. 31, 2025, based on calendar year, rather than FY estimates for 2025.
JACK is a volatile stock. There have been five major declines since 2019 and four completed rebounds. Average drops weighed in at (-51.7%) over 8.75 months. The four upturns averaged a stellar +195.7% and took only around 6.5 months to unfold.
Using the Olympic scoring system (removing the largest decline and the biggest advance from the data) saw average rebounds of 47.2% take place over around four months.
GuruFocus shows JACK is now at its most underpriced level in almost five years. The ridiculous selloff has pushed JACK’s current yield to a stunning 5.62%.
That rate is better than any bank CD or Treasury bond yield available today.
GuruFocus’ estimated present-day fair value of $83.83 for JACK suggests a gain of greater than 167% plus dividends awaits.
Quantitatively based FASTgraphs calls 17.47x as the normalized P/E for JACK. Its middle-of-the-road price target for year-end 2025 weighs in at nearly $91.
Based on all fundamentals available today JACK is one of the absolute best buys out there.
Chartists will counter that “the market” has some knowledge of bad things to come which must be respected. They would have justified selling or failing to buy JACK on that basis back in the spring of 2020, just ahead of a 641% surge.
Ditto for bottoms reached in 2022, 2023 and right now,
Absent negative facts, I am sitting tight on my large holding of JACK. It goes ex-dividend for 44-cents per share on March 20. $1 million dollars’ worth of JACK shares will draw quarterly income of $56,200 at the current rate.
Time will tell if my plan proves to be brilliant or foolhardy. Forty seven years of investing on fundamentals gives me confidence that this time is not different. As bad as it feels to be sitting on large paper losses I would be even more rankled if I bailed at the lows just before the next rebound gets going.
At the time of publication, Price was long JACK shares; and short JACK covered calls and naked puts.
