The restaurant industry has been facing a number of challenges in the recent past. Except for a few, most of the stocks in the industry failed to impress investors. Currently, restaurant operators are continuously trying to strategize and retain their competitive positions, and partner with delivery channels and digital platforms to drive incremental sales. Furthermore, digital innovations have become the need of the hour, with the growing clout of Internet.
Even though comps have increased over the past few quarters, decline in traffic continues to be a major concern for the stocks in this space. Per TDn2K’s The Restaurant Industry Snapshot, the industry witnessed comps growth of 0.4%, 0.1%, 0.8% and 1.2% in fourth-quarter 2017, and the first, second and third quarter of 2018, respectively. Rise in consumer demand and discretionary spending contributed to the comps growth.
However, according to TDn2K, erosion in traffic is a pressing concern. Notably, same-store traffic decreased 1.3% in the third quarter of 2018, proving that only guest checks and not guest counts are contributing to restaurant sales.
High costs of operations also pose a threat to restaurant operators. Sales-building efforts such as promotional activities and a convincing pricing strategy are detrimental to industry operators’ margins. Also, rising wages remain a hindrance for many players in the industry.
3 Solid Picks
It might be difficult for one to look at each parameter and compare with the peer group for an analysis on whether the stock is attractive from the value perspective. Therefore, to make the task easy, Zacks has designed the new Style Score System.
The attractiveness of a stock as an investment option is confirmed by its Value Score of A or B. The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
We have narrowed down our search to the following stocks based on a solid Zacks Rank #1 or 2 and Value Score of A or B.
Dave & Buster's Entertainment, Inc. (PLAY - Free Report) , which owns and operates entertainment as well as dining venues for adults and families, has a Zacks Rank of 2. Shares of the company have gained 43.6% in the past six months. Its earnings have surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average of 13.7%. Over the past 60 days, estimates for fiscal 2018 and 2019 have been revised upward by 0.4% and 0.6% to $2.76 and $3.14 per share, respectively. The company has a VGM Score of B.
The Habit Restaurants, Inc. (HABT - Free Report) , operator and franchiser of fast casual restaurants under The Habit Burger Grill name, has a Zacks Rank #1 and a VGM Score of A. Shares of the company have surged 52.6% in the past six months. It has an impressive long-term earnings growth rate of 20%. Further, the company delivered a positive earnings surprise in three of the four trailing quarters. Over the past 30 days, the Zacks Consensus Estimate moved north by 7 cents and 6 cents for 2018 and 2019, respectively.
El Pollo Loco Holdings, Inc. (LOCO - Free Report) through its subsidiary develops, franchises, licenses and operates quick-service restaurants under the name El Pollo Loco. Shares of this Zacks Rank #2 company have surged 44.6% in the past six months. Also, its earnings have surpassed the consensus mark in each of the preceding four quarters, with the average being 5.5%. Over the past 30 days, the Zacks Consensus Estimate for 2018 and 2019 climbed 1.4% and 4% to 72 cents and 78 cents per share, respectively. Currently, the company exhibits a VGM Score of B.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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