Restaurant business is not for the faint of heart. Competition is fierce, profit margins are low and consumers’ tastes and preferences change with time. Plus, time and again established brands somehow have been able to yield big gains for investors over the long run. But small-scale businesses mostly struggle and many don’t manage to survive.
Thanks to GrubHub and Uber Eats, delivery services are currently on the rise. Such digital food ordering methods mean less foot traffic in many restaurant chains, eventually hurting bottom lines. Industry researcher TDn2K did confirm that there has been an all-out decline in average foot traffic for years, dealing a blow to comparable store sales.
But despite such disappointing developments, it is the right time to pick some solid restaurant stocks. This is because such companies not only on an individual capacity have made the necessary changes to suit customers’ desires, consumer spending on eating out has also been rising steadily for quite some time now. Particularly last year, money spent on eating out equaled that spent at grocery stores for the first time in the United States, according to the U.S. Census Bureau.
And let’s admit that the domestic economy is humming and consumers are pretty confident about their well-being, which usually leads to folks eating out more often. The pace of U.S. economic expansion picked up in the third quarter of 2019. Per the Bureau of Economic Analysis, the economy grew at an annualized rate of 2.1% in the three months ended Sep 30, 2019, versus the initial estimate of 1.9% and 2% in the second quarter.
Separately, the U.S. Conference Board’s index of consumer confidence continues to remain high, as it came in at 126.5 for December. In fact, November’s reading was raised from 125.5 to 126.8. Moreover, the index that shows how consumers feel about the economy right now rose 4.4 points to 170. But what made Americans feel so confident? It’s a strong labor market and the lowest level of unemployment in a half-century.
4 Top-Notch Restaurant Stocks to Buy Now
It will, therefore, be prudent to watch out for fundamentally-sound restaurant stocks that can make the most of the bullish scenario. We have, thus, highlighted four such stocks that have the propensity to grow in the near term. These stocks also flaunt a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Texas Roadhouse, Inc. (TXRH - Free Report) operates casual dining restaurants in the United States. The company operates and franchises Texas Roadhouse and Bubba’s 33 restaurants. Roadhouse continues to be one of the best-in-class restaurant operators. The company has seen significant foot traffic and uptick in comparable sales. In the third quarter of 2019, the company had witnessed comps growth at a rate of 4.4%, easily topping the industry average.
The management’s move toward building new stores helped total sales jump 10% through the first three quarters of 2019. In fact, the company’s strategy to target suburban Americans and serve reasonable amount of food boosted Roadhouse’s profit margins.
The Zacks Consensus Estimate for its current-year earnings has increased 3.1% over the past 60 days. What’s more, the company’s expected earnings growth rate for the current and next quarter is a solid 21.4% and 14.3%, respectively.
Dave & Buster’s Entertainment, Inc. (PLAY - Free Report) owns and operates entertainment and dining venues for adults and families. The company’s initiative to cash in on the growing popularity of esports will surely drive its bottom line. From adding high-tech multiplayer attractions to improving its sports bar with 40-foot-wide TV screens to showcasing major sporting events, the company has definitely managed to lure customers.
Moreover, the company’s unique business model and various sales-boosting initiatives along with the continual expansion plans are expected to drive growth. The Zacks Consensus Estimate for its current-year earnings has climbed 1.1% over the past 60 days. In fact, the company’s expected earnings growth rate for the next quarter is an encouraging 15.9%.
Chipotle Mexican Grill, Inc. (CMG - Free Report) , together with its subsidiaries, operates Chipotle Mexican Grill restaurants. Chipotle stock almost doubled last year and it may still have more room to run this year. The company’s initiative to constantly innovate its menu will surely drive sales.
Last year, the fast-casual chain’s “Lifestyle” bowls was quite favored by customers. Chipotle is now poised to relaunch such bowls in the form of new salad blends, including baby kale and baby spinach.
Jack Bartlett, an analyst at SunTrust Robinson Humphrey, in the meantime said that as a result of Chipotle’s efforts to innovate menu, he expects the company’s same-store sales to jump 8% in the first quarter of 2020.
The Zacks Consensus Estimate for its current-year earnings has moved up 0.9% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is a superb 55.2% and 53.1%, respectively.
Domino's Pizza, Inc. (DPZ - Free Report) operates as a pizza delivery company in the United States. The company offers pizzas under the Domino's brand name through company-owned and franchised stores. The third quarter of 2019 marked the company’s 34th and 103rd consecutive quarter of positive same-store sales on the domestic and international front, respectively. To top it, Domino’s solid digital ordering system, robust international expansion and other sales initiatives should continue to drive growth in the near term as well.
The Zacks Consensus Estimate for its next-year earnings has increased 0.6% over the past 60 days. In fact, the company’s expected earnings growth rate for the current quarter and year are a promising 12.6% and 11.4%, respectively.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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