Make Money Investing In Franchises

When Peter Lynch was asked why he wasn’t a strictly blue-chip investor, he responded: “Because there is a lot of money to be made when a business model goes from crappy to semi-crappy.” A corollary observation I’d like to add is that there are enormous cash flows coming your way when a business switches from directly running its operations to a franchise agreement that has franchisees run the operations and pay a royalty for a right to use the brand name.

Recently, I chided Applebee’s for becoming a stale, saturated brand and offering my view that any excellent returns that DineEquity (DIN) shareholders receive from this day forward will be the result of the enormous cash flows being generated at the International House of Pancakes (IHOP) subsidiary.

What is worth analyzing, though, is how much money could have been made for the studious investor that recognized the one-time cash flows … Read the rest of this article!