Is Portillo's Stock Undervalued Amid Deteriorating Traffic and Rising EBITDA?

Portillo’s Inc. (NASDAQ: PTLO) has long been a poster child for value investing, with its iconic Chicago-based hot dog empire and aggressive expansion strategy. Yet, as of September 2025, the stock trades at a trailing P/E of 14.4–16.1x [1], raising questions about whether its valuation reflects intrinsic value or overcautious pessimism. This analysis examines Portillo’s financial health through the lens of earnings momentum and value investing principles, weighing its EBITDA outperformance against deteriorating traffic trends and inflationary pressures.

Revenue Stagnation and EBITDA Resilience

Portillo’s Q2 2025 results revealed a mixed picture. While revenue grew 3.6% year-over-year to $188.5 million, it fell short of analyst estimates by $8.5 million [4]. Same-restaurant sales rose 0.7%, driven by a 2.1% increase in average check size, but transactions declined 1.4%, signaling weakening customer traffic [4]. Adjusted EBITDA, however, outperformed expectations, reaching $30.1 million (16% of revenue), a 2.4% beat [1]. This margin resilience is partly attributable to disciplined cost controls, as the company’s EBITDA margin expanded despite rising commodity and labor costs.

Food, beverage, and packaging costs now consume 34.6% of revenue, up 3.4% year-over-year due to inflation [2], while labor expenses rose to 26.6% of revenue, driven by higher wages and benefit costs [2]. Portillo’s ability to absorb these pressures and still deliver EBITDA growth is commendable, but it raises concerns about long-term sustainability. As one analyst noted, “The margin expansion is impressive, but it’s built on a fragile foundation of cost pass-through and operational efficiency—both of which are harder to sustain as inflation normalizes” [4].

Valuation Metrics: P/E vs. PEG

Portillo’s current P/E ratio of 14.4–16.1x [1] appears attractive at first glance, especially compared to its five-year historical average of 20x+ [5]. However, the absence of a publicly available PEG ratio complicates deeper analysis [5]. A rough calculation using consensus estimates suggests a negative PEG ratio (-2.86%), given the projected 5-year earnings decline from $0.35 to $0.34 per share [3]. This discrepancy highlights a critical tension: while the stock’s earnings yield (6.6–7.1%) [1] suggests undervaluation, its earnings momentum has sharply deteriorated.

Historically, Portillo’s EPS grew at a blistering 57.4% annualized rate from 2020–2025 [5], but forward-looking estimates paint a grim picture. Analysts forecast a mere 3% annual EPS growth over the next five years [1], with 2025 guidance revised to 5–7% revenue growth [2]. This slowdown reflects both macroeconomic headwinds (3–5% commodity inflation [2]) and operational challenges, including underperformance in key markets like Texas [1].

Strategic Risks and Analyst Sentiment

Stifel’s November 2024 downgrade from “Hold” to “Buy” in September 2025 [4] underscores the volatility in analyst sentiment. The downgrade had cited “declining traffic and difficulty reversing trends without higher consumer spending” [1], while the upgrade cited “margin resilience and expansion optimism.” This whipsaw effect reflects broader uncertainty about Portillo’s ability to balance growth with profitability.

The company’s aggressive expansion—12 new locations planned for late 2025—could either drive revenue or exacerbate unit-level economics. With same-restaurant sales growth flattening at 0.7% [4], new units will need to achieve rapid payback periods to justify capital allocation. Meanwhile, pricing power remains constrained: Portillo’s 2.1% check growth [4] lags behind its historical 4–5% annual increases [5], suggesting diners are pushing back against price hikes.

Is the Stock Undervalued?

From a value investing perspective, Portillo’s low P/E and strong EBITDA margins suggest undervaluation. However, earnings momentum analysis tells a different story. The company’s transition from 57.4% annual EPS growth [5] to projected negative PEG implies a “value trap” risk—where cheap valuations mask deteriorating fundamentals.

The key question is whether Portillo’s margin outperformance can offset revenue stagnation. If EBITDA growth persists despite flat revenue, the stock could justify its valuation. But if traffic declines accelerate or cost pressures resurface, the P/E multiple may compress further. Investors must also weigh Stifel’s revised $16 price target [4] against a current price of $6.75—a 136% upside that assumes significant margin expansion and traffic recovery.

Conclusion

Portillo’s stock occupies a gray area between value and growth investing. Its EBITDA resilience and low P/E suggest undervaluation, but deteriorating traffic, weak earnings momentum, and a negative PEG ratio caution against complacency. For value investors, the stock could be a speculative bet if the company executes its expansion and stabilizes traffic. For others, the risks of margin compression and earnings contraction may outweigh the allure of a low P/E.

In the end, Portillo’s story is one of contradictions: a resilient margin amid stagnant revenue, a low valuation amid weak growth, and a bullish upgrade amid unresolved strategic risks. As the company races to open 12 new units, the market will be watching closely to see if its EBITDA magic can translate into sustainable shareholder value.

Source:
[1] Portillo's (PTLO) Research Report [https://stockstory.org/us/stocks/nasdaq/ptlo]
[2] Portillo's Inc. (PTLO) Stock Price, Market Cap, Segmented [https://www.datainsightsmarket.com/companies/PTLO]
[3] Portillo's (NasdaqGS:PTLO) Stock Valuation, Peer ... [https://simplywall.st/stocks/us/consumer-services/nasdaq-ptlo/portillos/valuation]
[4] Portillos Inc (PTLO) Q2 2025 Earnings: EPS Meets Estimate at $0.12, Revenue Falls Short at $188.5 Million [https://www.gurufocus.com/news/3035126/portillos-inc-ptlo-q2-2025-earnings-eps-meets-estimate-at-012-revenue-falls-short-at-1885-million]
[5] Portillo's Past Earnings Performance [https://simplywall.st/stocks/us/consumer-services/nasdaq-ptlo/portillos/past]