Why Portillo's Stock Crashed Tuesday Morning

Shares of Portillo's (NASDAQ: PTLO) plunged on Tuesday, with the stock falling as much as 10.2% in early trading. As of 11:34 a.m. ET, the stock was still down 5.9%.

The catalyst that crushed the fast-casual restaurant stock was the announcement of a large block stock sale, but it's important to understand the details, as this was not a secondary offering.

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Image source: Portillo's.

A big block sale

In a series of regulatory filings that dropped after market close on Monday, Portillo's announced the sale of a large block of its stock by early investor Berkshire Partners. The private equity firm has held a stake in the restaurant chain since 2014, long before the company's initial public offering (IPO) in October 2021. When Portillo's entered the public markets, Berkshire Partners exchanged its private equity ownership for shares of the company's stock, which have since been held in several of Berkshire's funds.

The sale was for 10 million shares, a transaction orchestrated by investment bank Jefferies Financial Group. The deal had been priced in a range of between $12.40 and $12.60, with a final price of $12.40, which was at the low end of the range.

As an early investor, Berkshire Partners has held its stake for more than a decade and retained much of its ownership of Portillo's even after the IPO, at the time controlling more than 64% of the voting rights of the company. This suggests that the private equity fund is finally looking to recoup some of its investment.

So is Portillo's a buy?

Like many restaurant stocks, Portillo's has felt the weight of inflation, particularly regarding the cost of its products and employee-related expenses. However, the company has resisted the urge to raise prices and continues to generate among the highest average unit volume (or sales per location) of any restaurant in the fast-casual industry.

Furthermore, at just 28 times earnings and 1 times sales, Portillo's stock is dirt cheap. The company has work to do, but I believe it's on the right track.

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Danny Vena has positions in Portillo's. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool has a disclosure policy.