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Mad Money's investment guru and founder of The Street, Jim Cramer, says: "Generally, we pay less for companies that rely on franchises to drive growth because franchising can really limit your upside." He's comparing the Price to Earnings ratio of three restaurant chains. Chipotle owns 100 percent of its restaurants, Panera owns about half and franchises the other half, and Buffalo Wild Wings is only 35 percent company owned and 65 percent franchised. (Read the full article here.)
That wisdom from a Wall Street insider is in direct conflict with what the Rosenberg Franchise Index of 50 publicly-traded franchising companies. The index is named after the founder of Dunkin' Donuts and the International Franchise Association, Bill Rosenberg. The RFI 50 Index says franchisors perform way better than the S&P 500 -- and ergo, have better expectations and hence PE ratios. The problem is this — no transparency. We don't know what companies are in the index.