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4 Stocks to Buy as Restaurant Industry Shows Promise

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The economy is fast reopening and people have once again started spending more on services than on goods. This has led to a rise in sales in service-related industries like bars and restaurants, travel and accommodation and recreation.

Especially, the restaurant industry, which was struggling for quite some time, has finally started bouncing back, with sales picking up in the last few months. Also, predictions are that the industry will be generating higher sales this year and touch the pre-pandemic levels. Given this scenario, stocks like Dave & Buster's Entertainment, Inc. (PLAY - Free Report) , BBQ Holdings, Inc. (BBQ - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Brinker International (EAT - Free Report) are likely to perform well in the near term.

Restaurant Sales Surge

According to the latest Mastercard SpendingPulse report, Americans have once again started spending more on services than goods. The report says that restaurant sales increased 19.1% in March on a year-over-year basis.

The report comes as part of the overall retail sales that increased 8.4% year over year in March. Retail sales in March were primarily driven by a surge in services and the restaurant industry had a major role to play.

The pandemic saw people cutting down on spending on services, and shelling out more on goods. This is because they weren’t left with much choice to spend on services owing to the COVID-induced lockdown.

As most people kept indoors almost throughout 2020 and a major part of 2021, the restaurant industry became one of the biggest casualties as footfall continued to shrink. However, the picture looks quite rosy now, with businesses and industries finally getting back to the optimum level of operation.

This has once again seen footfall increasing at bars and restaurants, thus driving sales.

Industry Poised to Grow

Over the past year, since COVID-19 related restriction started getting eased, the restaurant industry has been trying to get back on its feet. However, it still struggled as multiple COVID-19 variants that have emerged from time to time, have hampered the smooth functioning of the industry.

However, things finally seem to be getting back to normal and footfall is on the rise. Yet, the industry has a lot of challenges ahead, with rising costs being one of the biggest factors.

Soaring prices have been worrying people and might impact sales but so far that hasn’t been felt yet, with sales growing in March.

According to a report from the National Restaurant Association, 2022 sales at restaurants will be far better than 2021. The report suggests that restaurant sales will reach $898 billion in 2022 and return to the pre-pandemic trajectory.

Moreover, the foodservices industry is projected to add 400,000 jobs in 2022 to its already existing 14.9 million jobs. The picture looks a lot better than a year back and if things remain like this, the restaurant industry should only grow further.

Our Choices

Given the situation, it would be ideal to invest in restaurant stocks. We have shortlisted four restaurant stocks, each carrying a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BBQ Holdings, Inc. operates and franchises barbeque restaurants and blues clubs. BBQ currently owns locations and franchises in Minnesota, Wisconsin, Illinois, Iowa, Nebraska, Utah, Maryland and Virginia and has signed development agreements for additional franchised locations. BBQ Holdings’ menu features award-winning barbecued and grilled meats, an ample selection of salads, side items, sandwiches and unique desserts.

BBQ Holdings’ expected earnings growth rate for the current year is 49.3%. The Zacks Consensus Estimate for current-year earnings has improved 22.2% over the past 60 days. BBQ sports a Zacks Rank #1.

Dave & Buster's Entertainment, Inc. is a leading owner and operator of high-volume venues in North America that combine dining and entertainment for both adults and families. The core concept of PLAY’s chain is “Eat Drink Play and Watch,” all in one location. Under the Eat concept, Dave & Buster's Entertainment offers a wide variety of starters, burgers, choice-grade steaks and health-conscious food.

Dave & Buster's Entertainment’s expected earnings growth rate for the current year is 66.2%. The Zacks Consensus Estimate for current-year earnings has improved 25.5% over the past 60 days. PLAY sports a Zacks Rank #1.

Brinker International primarily owns, operates, develops and franchises various restaurants under Chili’s Grill & Bar (Chili’s) and Maggiano’s Little Italy (Maggiano’s) brands. EAT is a preeminent leader in the bar & grill category of casual dining. Brinker International has been functioning for over the last 40 years.

Brinker International Entertainment’s expected earnings growth rate for the current year is 12.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past 60 days. EAT carries a Zacks Rank #2.

Arcos Dorados Holdings Inc. operates as a franchisee of McDonald's, with its operations divided in Brazil; North Latin America division; South Latin America and the Caribbean division. ARCO also runs quick-service restaurants in Latin America and the Caribbean.

Arcos Dorados’ expected earnings growth rate for the current year is 62.5%. The Zacks Consensus Estimate for current-year earnings has improved 21.9% over the past 60 days. ARCO has a Zacks Rank #2.