Perhaps you’re lucky enough to have visited a Fogo de Chão restaurant—the company had 28 locations in the United States in early 2017, plus two in Mexico and ten in Brazil. Fogo de Chão is a Brazilian-style steakhouse, or churrascaria, serving a variety of fire-roasted meats, carved at the table by gaucho chefs who have been trained in this southern Brazilian cooking style. Certainly, the roaming chefs serving custom cuts of meat is part of the charm of a Fogo de Chão visit, but it’s also part of a unique delivery model that allows the restaurant to control costs by reducing the number of wait staff required. To complement the assortment of meats, diners can visit the extensive buffet, which includes self-service salads, side dishes, and desserts.

This high-end restaurant, which competes head-to-head with Ruth’s Chris Steakhouse and The Capital Grille, has humble beginnings. In 1979, two sets of brothers, Jair and Arri Coser and Jorge and Aleixo Ongaratto, opened a churrascaria in a shed with a grass roof in Porto Alegre, Brazil.

The restaurant had a rustic flair, as is suggested in the name Fogo de Chão (for fire on the ground). Over the next six years, the company prospered and two additional locations were opened in São Paulo. But a chance encounter with a former president, George H. W. Bush, launched their expansion into the United States. Dining at one of the São Paulo locations in 1995, the former president was so delighted with the food and service that he suggested the brothers expand their operations to the United States. Two weeks later, Jair and Jorge were headed to Texas. “I think about why I came to the United States all the time,” says Jair Coser. “I cannot explain it. I had a good life at that time in Brazil. I have my house. I have my family. I have my business. And it was, ‘Let’s go.’”

In 2005, the Ongaratto brothers sold their interests in the company to the Cosers, who became equal co-owners. To allow for continued expansion, the Cosers brought in GP Investments, one of the largest investment funds in Brazil, the following year, but maintained a controlling interest. In 2012, the Coser brothers decided to liquidate their investments, reportedly selling the company for $426 million to Thomas H. Lee Partners L. P. At that time, the chain was up to 16 U.S. restaurants and seven locations in Brazil.

The new ownership team successfully continued the expansion of the restaurant chain, retaining many of the upper-level managers and bringing in new talent and expertise to shore up accounting and management practices. In 2015, the company went public with an initial public offering of just over 4.4 million shares of stock, raising $88.2 million at a price per share of $20, well above the projected selling price range of $16–$18 per share. Thomas H. Lee Partners L. P. retained over 22 million shares for themselves, giving them nearly 80 percent controlling interest in the company. Fogo de Chão used that money to pay down debt, and since then has seen steadily increasing revenues and net income.

Just before Fogo de Chão went public, three other restaurant chains did the same: chicken-wings chain Wingstop Inc. raised $127 million in its IPO, chicken-and-biscuits chain Bojangles’ raised $169 million in its IPO, and burger chain Shake Shack Inc. raised $121 million.¹ Shake Shack went public at about $46 per share and within months hit $96 before entering a long slide that led to a mid-2017 price of less than $40. Bojangles’, which opened at almost $24 per share, slipped by mid-2017 to less than $18, while Wingstop has bounced between $26 and $33 ever since it went on the market at $30. So, 2016 and early 2017 were rough on the restaurant industry as a whole, and Fogo de Chão, even with a positive earnings report, was no exception. By early 2017 the stock that sizzled at $20 when it first hit the market had dropped in value to less than $15 per share. To be fair, as a full-service restaurant, it doesn’t really compare to Wingstop or Shake Shack. With dinner plates ranging from $50–$60, Fogo de Chão competes with the more upscale steakhouses such as Ruth’s Chris Steakhouse, Del Frisco’s, and The Capital Grille. Nevertheless, the stock price performance has been disappointing.

There’s often no one particular reason that a stock will fall or rise in value, but for Fogo de Chão, there are a few factors that investors may be looking at as they consider whether to buy, hold, or sell the stock. For instance, even though paying down debt sounds like a good idea, there are some disadvantages to that strategy, especially for a company-store-owned model. It takes a lot of capital and cash to open new restaurants, and using the IPO proceeds to pay down debt left the company cash poor. Some of the robust sales in 2016 were a collateral effect of the Olympics. In addition, because of the special skills needed to cook gaucho style, Fogo de Chão relies on bringing in chefs from Brazil on L-1B “specialized knowledge” visas, which have been suspended and some even revoked retroactively. So, what does all this point to? As with any investment in a publicly held company, it’s actually impossible to accurately predict whether the stock will go up or down. Being a well-informed investor gives you an edge, but as the American business author William Feather once said, “One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.” (After studying the content in this chapter, you should be able to answer a set of discussion questions found at the end of the chapter.)