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4 Restaurant Stocks to Buy Amid Ongoing Industry Challenges

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The retail sector is struggling as soaring prices continue to hamper sales. However, people are aggressively spending on restaurants and bars. This, at the same time, shows that spending on services has continued to expand in spite of people tightening their purse strings.

The restaurant industry took a beating during the peak of the pandemic but is trying to make a comeback. The jump in sales has also seen a rise in hiring over the past few months. This indicates that the industry is still on solid ground despite the ongoing challenges. Given this scenario, stocks like Arcos Dorados Holdings Inc. (ARCO - Free Report) ,Potbelly Corporation (PBPB - Free Report) , FAT Brands Inc. (FAT - Free Report) and Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) are likely to benefit in the near term.

Restaurant Sales Rise

Sales at U.S. restaurants and bars jumped 1.1% in August as more people spent on dining out. This comes despite the rising costs of dishes and raw materials. Moreover, the rise comes amid a meager 0.3% rise in retail sales in August.

The jump in sales and restaurants doesn’t come as a surprise. An increasing number of Americans have been spending on dining out since the economy reopened post COVID lockdowns.

Moreover, according to data from the U.S. Census Bureau, sales at restaurants and bars were $86.1 billion in July, essentially unchanged from June and up about 12% from the previous year.

The restaurant industry suffered the most during March and April 2020, following the coronavirus outbreak. Sales started picking up thereafter, but the rebound was unsteady given that many feared to step out confidently and COVID-related restrictions were still in place.

This year has finally given the industry a chance to bounce back and sales have now returned to the pre-pandemic levels and are expected to grow in the coming months.

Normally, people tend to spend more on services and less on goods. However, the trend changed during the peak of the pandemic, with people spending on goods as they didn’t have too many options to spend on services.

Restaurant Industry Poised to Grow

Things have once again revered with the situation almost coming back to normal. Bars and restaurants is the only service industry that is included as part of retail sales. This is another reason the jump in restaurant sales is quite high compared to the sales of other industries, including overall retail sales.

Rising costs remain a major challenge but restaurant owners are trying to fight back. Restaurant owners' emphasis on digital innovation, their measures to boost sales, and cost-cutting efforts have been the major catalysts in this year’s rebound. Digital innovation is now essential, given the Internet's expanding significance. To increase sales, large restaurant chains frequently work with delivery services and digital platforms, giving a boost to sales.

The industry's sustained job growth is another indicator that restaurant sales are on the rise. In August, the American economy added 315,000 new jobs. Of these, the leisure and hospitality sector added 31,000 new jobs.

Additionally, the National Restaurant Association (“NRA”) forecasts sales at restaurants and bars to exceed $898 billion in 2022. The improvement can be linked to the strengthening of essentials, including adjustments in operational procedures, personnel, workplace layouts and technology.

Our Choices

Arcos Dorados Holdings Inc. operates as a franchisee of McDonald's, with its operations divided into 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 more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 11.4% over the past 60 days. Currently, ARCO has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Potbelly Corporation is a neighborhood sandwich concept. PBPB manages establishments for consuming food on premises and offers sandwiches, salads, soups, chili, chips, cookies, ice cream and smoothies. Potbelly Corporation serves customers throughout the United States.

Potbelly Corporation’s expected earnings growth rate for the current year is 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. PBPB currently carries a Zacks Rank #2.

FAT Brands Inc. is a multi-brand, restaurant franchising company. FAT develops, markets and acquires restaurants. FAT Brandsprimarily operates Fatburger, Buffalo's Cafe, Buffalo's Express and the Ponderosa & Bonanza Steakhouse concepts.

FAT Brands’ expected earnings growth rate for the next year is 100%. FAT shares have gained 9.8% in the past 30 days. FAT currently has a Zacks Rank #2.

Cracker Barrel Old Country Store, Inc. is engaged in the ownership and operation of full-service restaurants with a restaurant and a retail store in the same unit. CBRL’s restaurants serve home-style country food, including meatloaf, homemade chicken ‘n dumplings as well as its signature biscuits using an old family recipe.

Cracker Barrel Old Country Store’s expected earnings growth rate for the current year is 15%. CBRL’s shares have gained 9.5% in the past 30 days. Currently, Cracker Barrel Old Country Store has a Zacks Rank #2.

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