Food is a way for us to connect– from the first date to celebrating our lives’ most important moments, a sit-down meal always carries significance. While food prices have risen across the board– with increases being even more painful for those who frequently eat out, consumer spending in this sector hasn’t seen much of a hit. Each month, spending amounts to between $94-95 billion, which indicates that while some volatility is still present, people aren’t willing to give up their special moments just yet.
However, concerns about consumers becoming fed up with high prices have become key issues for many companies, with companies from McDonald’s (NYSE:MCD) to Wendy’s (NASDAQ:WEN) releasing new “value” meals. However, the companies presented today don’t have to do this as they are either diversified in the fast food space, or sit-down restaurants, which can raise prices with less criticism.
With that in mind, here are three restaurant stocks to buy now.
Yum! Brands (YUM)
Yum! Brands (NYSE:YUM) is a conglomerate specializing in quick-service restaurants. Its subsidiaries include KFC, Taco Bell, and Pizza Hut, among other companies. This diversified portfolio has led YUM to gain a great foothold in the restaurant sector. It also has multiple international segments, which contribute heavily to its growth.
Earnings-per-share (EPS) predictions are trending downward, with analysts predicting an EPS of 5.67 until the end of the year, down from the 5.79 predicted 90 days ago. This is in line with growth predictions, which suggest a downtrend this year and a rebound next year. Analysts are predicting an annual growth rate of 11.10% over the next five years at the moment. It’s reported that the company has a growth potential of around 14%, which further solidifies its “buy” rating.
While having it may have missed earnings estimates in Q1 2024, YUM has some great fundamentals. The fragmentation of its subsidiaries across various countries has led the company to see impressive growth in certain regions. This is especially true with KFC in the Latin America/India regions, which posted growth of 22% and 12% respectively in Q1. YUM is also expanding rapidly, with the addition of 808 new units globally, further adding to potential revenue. Thus, YUM is a restaurant stock to buy.
Texas Roadhouse (TXRH)
Texas Roadhouse (NASDAQ:TXRH) is a leading chain steakhouse. It falls in the “casual-dining” space, with stores in the U.S. and internationally. While this isn’t a big international chain restaurant, TXRH remains one of the favorite restaurant stocks to buy now for analysts, with a proposed growth potential of 2.77% for this year.
TXRH’s financials look amazing; profit margins, return on assets and equity, operating margins etc. are all above sector averages. TXRH saw quarterly revenue growth of 12.50% as of Q1 2024. This corresponded with a quarterly earnings growth of 31%. Such discrepancies are normal and are likely due to the fact that as revenue grows, the costs related to obtaining that revenue generally go down.
There are notable risks to TXRH. High beef prices will strike this chain hard due to its steak-centric menu. However, this could be a double-edged sword. Being a mid-priced steakhouse, it is poised to poach consumers who would likely go to fancier restaurants but were priced out. This is already starting to take place, with popular Reddit (NYSE:RDDT) posts talking about TXRH’s great value popping up. Additionally, several investment advisory firms, as well as multiple banks rate TXRH a “buy” stock, making a stronger case for it.
The Cheesecake Factory (CAKE)
The Cheesecake Factory (NASDAQ:CAKE) is an iconic restaurant chain that operates exclusively in North America. The company also has several subsidiaries, including Flower Child and North Italia. This company is a great value and long-term pick.
While CAKE doesn’t have current growth catalysts, the company’s financials makes it clear why CAKE is a buy. While a profit margin of 3.07% is within the sector average, a return on equity of 33.69% is unprecedented. This is important for investors, as the return on equity is a measure of not only the company’s profitability, but also its efficiency in growing shareholder value.
CAKE saw YOY revenue growth of 2.9% last quarter, with earnings going up 18.3%. This exceeded analyst expectations by 7.3%, which is a significant jump. This trend appears to be long-term, however. Analysts have raised EPS predictions for both 2024 and 2025, predicting growth at 15.25% annually over the next five years. Should CAKE meet this, its stock will soar– taking your investment with it. This all makes CAKE one of the restaurant stocks to buy now.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.