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Restaurant Stocks that Could Be the Next Dave & Buster's

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Restaurant stocks have failed to find favors with investors so far in 2016.  As a result, most of the restaurateurs have been grappling with sluggish comps and soft traffic growth.

Also, the Zacks Industry Rank for the Retail Restaurants industry currently stands at #156. This puts the industry in the bottom 41%, corresponding to a negative outlook.

However, while the restaurant industry is struggling through its worst year since the end of recession, there are some big players that seem to be untroubled by the ordeal. One such company is Dave & Buster’s Entertainment, Inc. (PLAY - Free Report) that got listed in Oct 2014 and has exceeded expectations each time since.

We note that the company’s shares have outperformed the Zacks categorized Retail--Food & Restaurant industry year to date. While the stock gained 36.6%, the broader market has witnessed a modest gain of 0.4% over the same time frame. In fact, since the launch of its IPO, shares of the company gained nearly 190%. Propelling this multi-year stretch of outperformance is the company’s unique business style and its strategic initiatives.

Therefore, notwithstanding a long list of apprehensions, there are a few other restaurant stocks as well that are expected to follow Dave & Buster's footsteps, all of which carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Prospective Winners

Demand for pizza is hardly ever going to go down and pizza giants are riding high on this assurance. Domino’s Pizza, Inc. (DPZ - Free Report) and Papa John’s International, Inc. (PZZA - Free Report) are two such Zacks Rank #2 companies that reign the quick service restaurant space.

Both these widely-loved companies need no introduction as far as their scale of operations and market presence is concerned. Both these companies’ strong digital ordering platforms, international expansion story and sales-boosting initiatives are likely to drive revenues and earnings, going forward.

Notably, while Domino’s outperformed the broader industry year to date, with growth nearing 51% compared with 0.4% of the latter, Papa John’s witnessed growth of above 58%.

Moreover, Papa John’s has delivered the highest return on equity compared to its peers in the trailing 12 months, providing a return of 4985%.

Both the companies also carry a Growth Style Score of ‘A’. Back-tested results show that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined a Zacks Rank #1 or #2 offer the best investment opportunities in the growth investing space.

Upward estimate revisions reflect optimism in a stock’s prospects going forward. For Papa John’s, the Zacks Consensus Estimate for 2016 and 2017 has climbed 2.5% and 1.5%, respectively, over the last 60 days. Further, for full-year 2016, EPS is expected to grow a healthy 19.9%, while sales growth is projected to be 4.93%.

Similarly, Domino’s prospects also seem bright. Estimates for 2016 and 2017 have climbed 2.9% and 4.5%, respectively, over the last 60 days. Also, for full-year 2016, EPS is expected to grow 23.1%, while sales growth is likely to be 9.7%.

Adding to these great growth stories is another pick of ours, The Cheesecake Factory Inc. (CAKE - Free Report) , carrying a Zacks Rank #2. Headquartered in Calabasas Hills, CA, it operates many upscale, high volume casual dining restaurants. Notably, Cheesecake Factory restaurants have posted positive comps in 27 consequent quarters. Going forward, various initiatives to boost sales and traffic volumes coupled with menu innovation should aid in keeping up the trend of positive comps. We have noted some key indicators of its upcoming growth tale:

  • Performance year to date: 39.2% growth, and has been consistently outperforming the industry
  • Change in Full-Year Estimate Revision (over 60 days): 3.3%
  • Change in Next-Year Estimate Revision (over 60 days): 3%
  • Expected 2016 EPS growth: 19.5%
  • Expected 2016 sales growth: 7.93%
  • Forward P/E Ratio: 22.66 (lesser than industry average, deeming it undervalued)


Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) is principally engaged in the operation and development of the Cracker Barrel Old Country Store restaurant and retail concept. The company’s unique format of stores consists of a rustic, old country-store design with a separate retail area offering a variety of decorative and functional items, setting it apart from other restaurant outlets. Moreover, the company’s excellent margins, historic return on equity delivered, and consistently strong revenue growth story make it a great pick. Some key stats to note are:

  • Performance year to date: 32% growth, almost consistently outperforming the industry
  • Change in Full-Year Estimate Revision (over 30 days): 2.1%
  • Change in Next-Year Estimate Revision (over 30 days): 2.1%
  • Expected 2016 EPS growth: 9.1%
  • Expected 2016 sales growth: 2%
  • Forward P/E Ratio: 22.66 (lesser than industry average, deeming it undervalued)


Based in Ohio, Bob Evans Farms, Inc. owns and operates full-service restaurants that offer breakfast, lunch and dinner items. It also produces and distributes fresh, smoked and fully cooked pork sausage, ham, and hickory-smoked bacon products as well as ready-to-eat items such as sandwiches. It is the only Zacks Rank #1 company in the industry and we are positive on its focus on quality improvement, investment optimization on labor to deliver a better experience to guests and efforts to reduce costs. Other factors adding to a Growth Style Score of ‘A’ are:

  • Performance year to date: 37.4% growth
  • Change in Full-Year Estimate Revision (over 30 days): 6.2%
  • Change in Next-Year Estimate Revision (over 30 days): 6.1%
  • Expected Current-Year EPS growth: 10.4%
  • Forward P/E Ratio: 23.83 (lesser than industry average, deeming it undervalued)


Bottom Line

Though the restaurant industry has its share of pitfalls in the form of sluggish comps growth and traffic trends along with rising labor costs, effective sales initiatives undertaken by the companies should keep it going. We expect the industry to get its groove back going ahead, and thus investors should not shy away from investing in this space. Further, most of these have a beta less than one, providing some relief from overall market volatility too.

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