Some look tastier than others

Don’t look now, but with the overall market down close to 5% over the course of the last three months, hungry investors looking to snack on outperformers have turned to a handful of restaurant stocks to curb their portfolios’ cravings.

Wingstop, which clawed its way through the chicken-wing shortage of 2021 by launching Thighstop — an online-only restaurant that delivered exclusively through DoorDash — has been on an absolute tear over the course of the last three months. Whether it’s because revenue is up 13% year-over-year or the new mango habanero chicken sandwhich is driving the stock price up, it’s up. Not up by a marginal amount, either … up by 68% in the last three months alone.

Wingstop isn’t alone. Chipotle Mexican Grill is up more than 17% over the course of the last three months, Nathan’s Famous is up more than 26% and FAT Brands is 22% higher than it was three months ago.

The gains don’t tell a complete story, though. The industry is facing major headwinds. The consumer is doing OK now, but if a recession is in the cards, that won’t be the case for much longer. Inflation isn’t helping matters, either.

Higher costs aren’t just hitting consumers, the restaurant and hospitality companies are feeling the pain as well. As chicken prices rise, Wingstop has to pay more for chicken just like we do.

Some restaurants are having trouble finding people to cover the shifts while others still haven’t hit their post-pandemic stride. Red Robin and Papa John’s are down 12.3% and 11.4%, respectively.

I loved Papa John’s pizza as a kid. The crust was pretty good, but, coupled with that signature garlic butter they slid into every box, it bordered on incredible. At least, that’s what my 12-year-old self would say. I haven’t had it for years … maybe I’ll reacquaint myself this weekend.

Pizza does go great with football.

I doubt my order will help the share price much, but things like pandemic restrictions ending and supply-chain issues resolving should. There will be winners and losers, obviously, but here are 25 restaurant stocks to look into:

Wingstop

Wingstop (WING) is known for two things: its aviation-themed restaurants and the chicken wings that fly out of them. The restaurant chain was founded in 1994 and began offering franchises in 1997. Since then, Wingstop has grown its footprint to more than 1,400 restaurants.

Wingstop shares are currently trading around $132 — a price 68% higher than they were three months ago ($78).

It has a ridiculously high price-to-earnings ratio of nearly 100, but market participants don’t seem to have a problem paying the premium.

Wingstop also pays a small dividend (quarterly payout of $0.19 a share, which represents a 0.63% yield).

Nathan’s Famous

If you saw Joey Chestnut win the 2022 Nathan’s Famous Hot Dog Eating Contest at Coney Island, you’re undoubtedly somewhat familiar with Nathan’s Famous (NATH).

That man is an absolute freak of nature. He put down 63 dogs, 20 more than runner-up Geoffrey Esper.

Nathan’s Famous has been a little freakish over the last three months, too, up over 26%.

Free cash flow is negative, but up 72% quarter over quarter. New York had some of the strictest shutdowns during the pandemic. Now that those have been lifted, the rise in revenue and free cash flow should continue.

FAT Brands

If I’m being honest, I hadn’t even heard of most of FAT Brand’s brands when I looked into the restaurant operator for this post. Ponderosa Steakhouse was one of the few I was familiar with, but I didn’t think it was still around.

A few of the others include Yalla Mediterranean, Buffalo’s Cafe & Express and Fatburger. Considering the company calls Beverly Hills home, I assume most of those are west coast chains … I certainly haven’t run across any in the midwest.

Regardless, FAT Brands (FAT) is on fire right now, up nearly 22% in the last three months.

With a market cap of just $141 million, it has an insane amount of debt on its balance sheet ($1.15 billion). That stood out to me most. The dividend yield is also really high (7.69%), but that comes with an unsustainable payout ratio of -14.48%, meaning the company is paying shareholders more in dividends than its free cash flow.

Chipotle Mexican Grill

The king of fast, casual dining has had a great summer as Chipotle Mexican Grill (CMG) is up more than 20% in the last three months.

Take a peek at its income statement and you’ll see why it’s been on such a tear. Nearly every measurable metric is up. Revenues have jumped 26% year-over-year, net profit margins are up 45% and net income is 83% higher than it was a year ago.

Those are some serious boosts — increases stemming from its streamlined online ordering experience and a return of burrito connoisseurs everywhere.

Things look good for Chipotle right now, but it does have a few headwinds, the main ones being, in my far-from-professional opinion, unionization efforts from employees and a new bill in California with the potential to raise minimum hourly pay to $22.

Jack in the Box

Jack in the Box (JACK), similar to Chipotle and FAT Brands, has extreme exposure to the state of California.

In other words, once the fallout from the new bill signed by Gov. Gavin Newsom shakes out, Jack in the Box is going to have tighter operating margins and higher operating expenses than it currently has. The share price is up +10.8% over the last three months, but I would stay away as the burger chain, overall, has about $1 billion more in liabilities ($2.57 billion) than assets ($1.75 billion).

That’s a problem I wouldn’t want to have to deal with in a rising-rate environment.

Restaurant Brands International

Restaurant Brands International (QSR) is another stock up double digits (14%) in the last three months. The company, formed in 2014 by the $12.5 billion merger between Burger King and Tim Hortons, is the fifth-largest operator of fast food restaurants in the world behind Subway, McDonald’s, Starbucks and Yum! Brands.

Restaurant Brands International has managed to raise revenue 14% year-over-year, but operating expenses have exploded by 36% to $141 million in the most recent quarter alone.

Those expenses are only going to continue to go up.

Dave & Buster’s

Dave & Buster’s (PLAY) is up nearly 7% over the last three months. Valuation seems decent (P/E ratio of 13.4), but, like some of the other restaurant stocks on this list, it has almost as much debt ($1.78 billion) as its market cap.

Starbucks

If you don’t know about Starbucks (SBUX), you’ve obviously never heard of coffee. With more than 33,000 stores in 80 countries, its footprint is hard to beat. It’s easily the world’s largest coffeehouse chain and, it’s up 10% over the last three months.

Starbucks has a price-to-earnings ratio of 23.77 and pays a 2.32% dividend.

McDonald’s

Home of Ronald and the signature Golden Arches, McDonald’s (MCD) has been in the game since 1940, when Richard and Maurice McDonald founded the first restaurant in San Bernardino, California.

Most market participants buy McDonald’s for the dividend, which has been growing for 20 consecutive years. Currently, its annual dividend sits at $5.52 a share (or $1.38 a quarter). The payout ratio is a sustainable 55% and it’s grown at a rate of 7.98% over the last five years.

McDonald’s is up 5% in the last three months.

Wendy’s

Wendy’s (WEN), another old-school burger joint, is up nearly 4% in the last three months.

The chain recently announced a modernized restaurant design as part of an effort to “deliver more Wendy’s to more people with an emphasis on convenience, speed and accuracy.”

Wendy’s has a price-to-earnings ratio of 22.51 and pays a 2.63% dividend.

Texas Roadhouse

Like almost every other restaurant on this list, Texas Roadhouse (TXRH), up more than 10% in the last three months, is seeing year-over-year growth across the board.

Obviously, investors love to see growth.

Recent growth in the restaurant space, though, comes with a caveat: 2020 and 2021 were brutal. Almost every restaurant, even the terrible ones, are seeing upticks in traffic and sales.

Shake Shack

One of the newer kids on the burger block, Shake Shack (SHAK) is up nearly 3% in the last three months.

Based in New York City, it started out as a hot dog cart inside Madison Square Park in 2001.

Shake Shack has historically been one of the fastest-growing restaurant chains you’ll find. It’s done OK over the last three months, too, up about 3%.

Cracker Barrel

Cracker Barrel (CBRL), as you’ll soon see, is the last restaurant stock on this list that’s positive over the last three months. It’s up more than 6%.

Investors buy it for the annual dividend, which, at $5.20 a share, clocks in with a yield north of 5%. Be warned, though: the payout ratio is pretty high at 72%.

Red Robin

As teased earlier in this post, Red Robin (RRGB) has been absolutely crushed, down 12.3% over the last quarter or so.

Revenue has gone up year-over-year, but only marginally (6%-ish). That’s not what investors are looking for as restaurants like Red Robin, now that people are free to come and go as they choose, should be coming in more than they did when the pandemic was still causing significant hiccups a year ago.

Papa John’s

The revenue growth at Papa John’s (PZZA) is even worse than at Red Robin (up just 1.5% year-over-year).

The dividend, though, is honestly pretty good.

I didn’t consider Papa John’s a dividend-growth stock, but, the numbers indicate that’s exactly what it is.

The pizza restaurant pays shareholders an annual dividend of $1.68 a share ($0.42 a quarter), which represents a yield of 2.10%. It’s not the best yield out there, but it’s on the rise, growing at a rate of 12.25% over the last five years.

Domino’s

Domino’s (DPZ), down less than a percent over the last three months, has an even better dividend than rival Papa John’s … at least from a growth perspective.

The company, still licking its wounds from its failed experiment (hint: it tried to sell pizza to Italians), has grown its current $4.40 annualized dividend by an average of 19.42% over the last five years.

Brinker

Brinker (EAT), which owns Chili’s and Maggiano’s Little Italy restaurant chains, is one of the cheapest stocks on this list from a price-to-earnings perspective (10.03).

It’s also one of the most highly-levered (with total liabilities of $2.75 billion) and worst-performing (down 12.46% in the last three months).

Dine Brands

Dine Brands (DIN), down around 11% in the last three months, was founded in 1958 as International House of Pancakes, better known as IHOP.

Since then, the restaurant operator has added Applebee’s to its umbrella of brands.

It has a price-to-earnings ratio of 12.30 and a dividend yield of 2.11%.

Denny’s

Denny’s (DENN) is a diner-style restaurant chain. It’s down in the neighborhood of 6% over the last three months and has an insanely low price-to-earnings ratio (6.12).

BJ’s Restaurants

BJ’s Restaurants (BJRI), which doubles as a brewery, is down about 3% in the last three months. Margin pressures have crushed the company in the last year, and they’re at least partially responsible for the restaurant’s 95% decline in net income.

Yum! Brands

Yum! Brands (YUM) owns some of the top fast food restaurants in the world, including KFC, Pizza Hut and Taco Bell.

The company has three times as much in liabilities as assets on its balance sheet, though, which is terrible.

It’s down 3% in the last three months.

Darden Restaurants

Darden Restaurants (DRI), also down about 3% in the last three months, owns two fine dining restaurant chains: Eddie V’s and The Capital Grille.

It also owns Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, Yard House and Cheddar’s Scratch Kitchen.

Ruth’s Hospitality

Ruth’s Hospitality (RUTH), owner of Ruth’s Chris Steakhouse, is over 100 restaurants spread out across the United States, Canada and Mexico.

It’s down -8.6% in the last three months.

Cheesecake Factory

Cheesecake Factory (CAKE) is down 8% in the last three months as investors continue to weigh all the headwinds facing the restaurant industry.

Bloomin’ Brands

Bloomin’ Brands (BLMN), the parent company of Outback Steakhouse, among others, is down 8.3% in the last three months.

Chuy’s

Chuy’s (CHUY), down almost 5% over the last three months, is a Tex-Mex restaurant chain established in 1982 in Austin, Texas. It now has close to 100 restaurants in 17 states.