Since its IPO to 2014, Chipotle Mexican Grill, Inc. (CMG Quick QuoteCMG - Free Report) was the apple of every investor’s eye, with revenues exhibiting an extraordinary CAGR of over 23%. The striking performance was supported by solid comparable restaurant sales (comps) growth.

However, 2015-end brought about a great downturn in the stock’s tale as E. coli and norovirus contamination incidents derailed its growth story. Despite various food-safety initiatives, the company continues to reel under the negative publicity.

Consequently, shares of Chipotle have been persistently underperforming the Zacks categorized Retail-Restaurants industry. The stock has recorded a massive dip of nearly 19% year to date, while the broader industry grew 2% in the same time frame. Although the restaurant industry itself is struggling through its worst year since the end of recession, Chipotle performed even worse.

Over the past 60 days, the Zacks Consensus Estimate has decreased over 50% for both full-year 2016 earnings and current-quarter earnings, adding to the company’s woes. Moreover, for 2016, sales and earnings are projected to decline nearly 13% and 88%, respectively, raising questions over this Zacks Rank #5 (Strong Sell) company’s prospects.

What’s Ailing Chipotle?

Chipotle’s performance has been largely injured by food-safety issues. As a safety measure, the fast casual chain was forced to close several outlets. Although they were reopened later with fresh ingredients and extensive cleaning and sanitizing activities, the incidents have dealt a severe blow to Chipotle’s sales. In fact, the company’s earnings and revenues have been under constant pressure since then.

Investors’ fears were also renewed earlier this month, when Chief Executive Officer (CEO) Steve Ells raised some concerns over the company in a conference. Among the top issues pointed out by the CEO is the possibility that the company might not be able to reach its previously announced guidance.

Furthermore, Ells stated that he himself was not satisfied with the rate of recovery of Chipotle and the quality of the guests’ restaurant experience. He added that most of the restaurants would be graded poorly due to untidy dining rooms, dirty soda filling stations and slow-moving lines.

Given the ongoing challenges, the company’s Board of Directors recently discarded the co-CEO model and made Steve Ells the company’s sole CEO. Along with this, the company added four new members to its Board of Directors in order to rejuvenate the board. With this the company aims to reinvigorate investors’ confidence and regain its footing.

We note that currently the company is trading at a forward P/E multiple of 216.39, manifold higher than the industry average of 23.36. This indicates that Chipotle is already trading at a huge premium relative to its true valuation.

Though Chipotle is undertaking various marketing and promotional efforts to boost sales, we believe it is going to take the company a long time to mark a turnaround. Chipotle’s market share, particularly in the Mexican cuisine category, is unlikely to increase any time soon as the company already reached 60% saturation in the U.S. last year, and is currently facing increased competition. Thus, though they could be helpful in the long-run, the company’s desperate efforts to save the brand are failing currently, making it a high-risk investment.

5 Good Picks for You

Chipotle might be going through a rough patch but there are other restaurant stocks that are performing well at the moment.

With the help of the Zacks Stock Screener, we have zeroed in on five stocks in the Retail-Restaurants industry with a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Below are five stocks that have had a good run on the bourse so far and have better prospects than Chipotle. So let’s dig in!

Headquartered in Dallas, TX, Dave & Buster's Entertainment, Inc. (PLAY Quick QuotePLAY - Free Report) owns and operates venues in North America that combine dining and entertainment. The company offers the opportunity to “Eat and Drink” and “Play and Watch” at one location, establishing it as a unique spot compared to other restaurants.

The Zacks Rank #1 stock has a solid growth story. The stock has returned over 34% year to date, while the broader industry grew at a modest rate of 2%. Moreover, the company has exceeded earnings expectations each time since its IPO in Oct 2014.

The interesting thing to note is that the company is still trading at a P/E and PEG metric lower than the industry average, suggesting there is some untapped potential left to capture.

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.

We are positive on this Zacks Rank #1 company’s focus on quality improvement, investment optimization on labor to deliver a better experience to guests and efforts to reduce costs.

The stock has returned over 39% year to date, and the company has delivered positive earnings surprises in each of the trailing four quarters. Moreover, upward estimate revisions also reflect optimism in the stock’s prospects. Current quarter and current-year earnings estimates have moved north by 12.5% and 6.7%, respectively, over the past month.

Demand for pizza is hardly ever going to go down and pizza giants are riding high on this assurance. Domino’s Pizza, Inc. (DPZ Quick QuoteDPZ - Free Report) and Papa John’s International, Inc. (PZZA Quick QuotePZZA - 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 are concerned. Both the companies’ strong digital ordering platforms, international expansion story and sales-boosting initiatives are likely to drive revenues and earnings, going forward.

Notably, Domino’s and Papa John’s outperformed the broader industry year to date, with growth nearing 45% and 60% respectively.

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.

Furthermore, upward estimate revisions reflect optimism in the stocks’ prospects, going forward. For Papa John’s, the Zacks Consensus Estimate for 2016 has climbed 2.5%, over the last 60 days. Further, for full-year 2016, earnings per share (EPS) is expected to grow a healthy 19.9%, while sales growth is projected to be 4.9%.

Similarly, Domino’s prospects also seem bright. Estimates for 2016 and 2017 have moved slightly upward in 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 Quick QuoteCAKE - 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 the trend of positive comps alive.

The stock has returned nearly 35% year to date and has consistently outperformed the industry. It is also trading at a P/E metric less than the industry average, deeming it undervalued.

Moreover, 2016 and 2017 earnings estimates have moved north over 3% in each, reflecting good prospects for the company. Further, for full-year 2016, EPS is expected to grow 19.5%, while sales growth is projected to be 7.9%, indicating good days ahead.

Bottom Line

At this juncture, it seems like dumping Chipotle might be a prudent move. Meanwhile, 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, all of the above mentioned stocks have a beta less than one, providing some relief from overall market volatility too.

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