In this piece, we are going to look at 10 Best Restaurant Stocks to Buy Today.
Currently, quite a bit of anxiety is struck by restaurant stocks in the market, as the Russell index that tracks restaurants experienced a 6% fall since March 2024. Other sectors, like industrials, and materials, to name a few, are experiencing a similar struggle as restaurants. This situation, as a whole, is indicative of potential late-cycle market issues marked by the market’s slow growth in general, which is driven by consumer distress in the U.S. in a larger sense.
Moreover, amidst this inflation-stricken market, restaurants in the U.S. are in quite a bit of a meal deal war, hoping to fulfill the customers’ need for affordability. As such, Sonic, a drive-in fast-food chain headquartered in Oklahoma, U.S., is the newest member to join the war, as it has introduced a $1.99 value menu, boasting a selection of various food items.
Previously, Taco Bell and Burger King have already introduced their discounted meal deals, showcasing various brands’ dire attempts to attract customers in the given circumstances. Moreover, this is also driven by increased food and wage costs in the market, pushing down the margins of various restaurant brands, according to analysts. The Consumer Price Index has risen at a cumulative rate of 20.8% since February 2020, as reported by Bureau of Labor Statistics data. Thus, this explains why restaurant ETFs and stocks have started off the third quarter on a lower note.
Nevertheless, there’s bright hope as the global fast food, which goes hand-in-hand with the restaurant industry, is set to grow at a CAGR of 3.7% from 2023 to 2032, expected to reach $1 trillion by then. Furthermore, one can keep their hopes high, as it is reported that a staggering 37% of the U.S. population is a consumer of fast food. For the fast-food market, the millennial segment is one that it must rely on the most, as 54% of this segment steps toward fast-food chains once or twice every week. You can check out our article about the 20 Fast Food Chains with Most Locations in the World.
On the other hand, according to the National Restaurant Association, the U.S. restaurant industry is forecasted to result in $1.1 trillion worth of sales in the year 2024. This will translate into the employment of 15.7 million Americans. However, amidst the supply chain inefficiencies and rising costs, it would be challenging for restaurant operators to make profits, and technology is expected to play a decisive role in determining the winners and losers of the market in the coming time, according to market analysts.
Thus, it’s essential to know where to put your money, when it comes to the restaurant market. Hence, now we will take you to our list of 10 Best Restaurant Stocks to Buy Today.
A family enjoying their meal at a restaurant from the company’s franchise operations.
Methodology
To curate our list of 10 Best Restaurant Stocks to Buy Today, we gathered a list of all companies with a significant presence in the restaurant industry. We then further narrowed down the list based on the companies’ respective upside potential and ranked the finest remaining companies by their number of hedge fund holders as of Q1, 2024, using Insider Monkey’s database that tracks the activity of 920 hedge funds. For stocks with an equal number of hedge fund holders, we used their upside as the tiebreaker. Plus, note that all the stock prices quoted are as of writing this article unless otherwise stated.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. Bloomin’ Brands, Inc. (NASDAQ:BLMN)
Number of Hedge Fund Holders: 29
With a current market cap of $1.66 billion, Bloomin’ Brands, Inc. (NASDAQ:BLMN) is one of the most valuable restaurant companies in the world! Bloomin’ Brands, Inc. (NASDAQ:BLMN), which owns several popular brands like Outback Steakhouse, Carrabba’s Italian Grill, and Fleming’s Prime Steakhouse & Wine Bar, is a casual dining restaurant holding company in the U.S.
The stock pushes its way through stocks like Brinker International and Wingstop. On the back of its great upside potential, as suggested by analysts, the stock is carrying a massive upside potential of 44%, which could take the current price of $19.19 to $27.64! Starboard Value LP and Tremblant Capital are the biggest hedge fund holders in the stock, carrying investment values of $242 million and $29 million, respectively. Moreover, the popularity of the stock has only grown on a Quarter-over-Quarter (QoQ) basis, as 5 more hedge funds have taken up a stake in the stock, taking the total tally to $400 million.
The company’s plans to find alternatives for their Brazilian business mean significant future cash inflow, offsetting their conversion of notes (maturing in 2025) to equity that resulted in the retirement of convertible notes worth $84 million. Thus, with no fundamental downsides in the stock, and the stock price only suffering due to the issuance of shares, the stock rightfully finds its place in our list, despite its not-so-fiery performance in Q1 2024.
9. Darden Restaurants, Inc. (NYSE:DRI)
Number of Hedge Fund Holders: 32
Having its outlets in more than 1800 locations, and serving customers through its various brands like Olive Garden, Yard House, and Ruth’s Chris Steakhouse, to name a few, Darden Restaurants, Inc. (NYSE:DRI) is a full-service dining restaurant, headquartered in Florida, U.S.
Darden Restaurants, Inc. (NYSE:DRI) saw its sales soar in the last quarter of 2023 on the back of the commendable performance of each of its four segments. The aggregate sales figure of the company rose 6.8% to $2.96 billion, primarily, on the back of a 55.91% increase in sales from its dining segment, as compared to the quarter, a year ago.
Furthermore, the analysts had given an estimate of $2.6 earnings per share (EPS), whereas the company recorded an EPS of $2.65 for the quarter. Resultantly, the company was able to declare a quarterly cash dividend of $1.4 per share, which was an increase of 6.9%, as compared to the previous quarter.
The company was also able to add 80 new company-owned outlets of Ruth’s Chris Steak House, along with 37 other new restaurants in the quarter, which also explains the rise in profitability and sales in the quarter.
Thus, the analysts, understandably, see the stock reaching $173.92 from its current price of $145.42, which would be an upside potential of a sweet 20%! With 32 hedge fund holdings in the bag already as well, the stock finds its rightful place in our list of 10 Best Restaurant Stocks to Buy Today.
We have to note that DRI shares were already trading above $175 just 3 months ago. DRI “is the best bellwether for full-service restaurant stocks in the space that we cover” Guggenheim’s Gergory Francfort said last month. DRI shares currently trade at a forward P/E of 15. Obviously if this price war escalates further or the economy rolls into a recession, we will probably buy DRI shares at much lower levels.
8. Dutch Bros Inc. (NYSE:BROS)
Number of Hedge Fund Holders: 33
Dutch Bros Inc. (NYSE:BROS), which is a drive-thru coffee chain in the U.S., is in a race of its own, as it opened up 153 new outlets in 2023, 37 of which were opened in the last quarter of the year alone! Moreover, the same number of outlets are set to open up in 2024 as well, which shall take the total count over 1000 by the end of the year!
Therefore, 33 hedge funds have held on to this stock, as of Q1 2024, taking up a total stake of $738.9 million! Moreover, Dutch Bros Inc.’s (NYSE:BROS) stock has been flying high in terms of popularity on a quarter-over-quarter (QoQ) basis, as the number of hedge fund holdings has increased from 23 in the Q4 2023 to 33, as of Q1 2024! The analysts see the stock price going as high as $50, as compared to its current price of $40.33, which means an upside potential of 24%! Citadel Investment Group has the biggest investment in the stock, totaling $160 million!
BROS shares bucked the industry wide trend in June and soared more than 50% over the last couple of months. In comparison SBUX shares lost around 20% year-to-date. Dutch Bros is a cheaper alternative to Starbucks and growing at the expense of coffee giant. Considering that budget constrained consumers are looking for cheaper Starbucks alternatives, it isn’t a surprise that BROS shares have been performing very well recently.
7. Shake Shack Inc. (NYSE:SHAK)
Number of Hedge Fund Holders: 34
Shake Shack Inc. (NYSE:SHAK), a brand that has evolved into a casual fast-food chain now, started off back in 2004 in New York, U.S.
Shake Shack Inc.’s (NYSE:SHAK) stock has picked on a winning note, post its announcement of results pertaining to the quarter ending 27 March 2024. The company swung things in quite a positive momentum, given that its net income was reported at $2.2 million, whereas it reported a net loss of $1.6 million for the quarter, a year earlier. In addition to this, the company’s revenue was soaring high, as it saw an uptick of 14.7% from $253.28 million a year ago to $290.5 million. Forecasts for the next quarter are in place too, wherein the company is expected to hit somewhere between $309 to $314 million in revenue.
On the other hand, 34 hedge funds have held interest in the stock, worth $695 million – 12 West Capital Management holds the biggest chunk out of it, worth $186.5 million. Analysts are also seeing a bright future for the stock, as they have set the target price of $113.5, in relation to its current price of $85.84, which would translate into an upside potential of the stock being 32.2%.
About the outlook of the company for the remainder of the year, Katie Fogertey, the CFO, spoke the following:
“Our teams are executing on our 2024 strategies to drive better overall guest experience, grow sales, expand restaurant-level profit margins, and lower build costs as we look to grow sales year-on-year by 12% to 15% and adjusted EBITDA by [between] 21% [and] 29% to $160m to $170m.”
Famous astrophysicist Neil deGrasse Tyson talked to Insider Monkey about his 5 favorite stocks back in 2018 and mentioned SHAK among those 5 stocks. SHAK shares returned around 60% since then but underperformed his other picks one of which more than tripled. You can watch our video about Tyson’s 5 favorite stocks here.
6. Yum! Brands, Inc. (NYSE:YUM)
Number of Hedge Fund Holders: 35
With brands like mighty Pizza Hut, much-loved Taco Bell, and everybody’s favorite KFC under its belt, Yum! Brands, Inc. (NYSE:YUM) is one of the 10 Best Restaurant Stocks to Buy Today.
The stock has 35 hedge funds holding stake in it, worth $584.4 million, as of Q1 2024 – this is an increase of two hedge fund holdings, as compared to the previous quarter, which indicates the rising popularity of the stock in the investment sense. Also, another thing that explains why the stock is placed in our list of best restaurant stocks to buy today is its upside potential – the analysts look at the stock price rising to $145.72, as compared to its current price of $129.58, which translates to an upside potential of 12.5%.
Yum! Brands, Inc. (NYSE:YUM) missed the analysts’ expectations for the 1st quarter of 2024, as it recorded an EPS of $1.15, and a revenue of $1.6 billion, both below analysts’ expectations. Net income saw an uptick to $314 million, growing year over year by 4.6%. The Middle East conflict i.e. Israel-Gaza conflict is one reason that the company believes has driven this timid growth in the quarter.
However, the following is what the company’s CFO, Chris Turner, said about the company’s outlook for the year:
“As a reminder, we shared on our last call the intent to purchase 218 KFC UK and Ireland stores. We’re excited to report we officially closed this acquisition at the end of April. These stores have average unit volumes above $2 million and healthy store level cash margins. We expect the addition of these units to provide approximately $40 million of incremental EBITDA in the 12 months after acquisition while the benefit to our operating profit will be largely offset over the next several years due to depreciation and amortization, including amortization of reacquired franchisees.
We are confident that 2024 will showcase a strong unit development story at or above 5% unit growth, led by KFC International as franchisees capitalize on our brand’s attractive paybacks. In the U.S., Taco Bell continues to balance core everyday value to cater to a more discerning consumer across income groups with premium innovation to attract new consumers. We expect full year Taco Bell company-operated margins to be in the range of 23% to 24%. Excluding the 53rd week, we now expect ex special G&A to be flat to down slightly for the year, including incremental G&A associated with the KFC UK acquisition. Finally, we are confident we will deliver at least 8% core operating profit growth excluding the benefit of the 53rd week.”
5. Domino’s Pizza, Inc. (NYSE:DPZ)
Number of Hedge Fund Holders: 40
Domino’s Pizza, Inc. (NYSE:DPZ) took its birth in 1960, and since then, it has evolved into a massive pizza restaurant chain. It is one of the fastest-growing fast-food chains in the U.S., with its number of locations worldwide totaling almost 20,000, as of now.
Domino’s Pizza, Inc. (NYSE:DPZ) is one of the best restaurant stocks to buy due to its sweet upside potential – according to analysts, the stock price is expected to hit $555.1 from its current price of $497.33, which is an upside of 11.6%! On top of that, the company surpassed analysts’ expectations, as its revenue rose 5.9% to $1.08 billion, as compared to Q1 2023. Even more importantly, the higher revenue drove the profitability of the company, as its margin saw an uptick of 10%, reaching 12%!
Moreover, forecasts suggest that the revenue is set to keep growing in the next year, at a rate of 6.4%! $1.2 billion worth of hedge fund holdings are in for the stock, as of Q1 2024, extending their case in favor of the stock’s bright future. DPZ shares also more than doubled over the last 5 years. Last month we also shared the news that TD Cowen upgraded its price target to $610. DPZ shares lost 7% of their value since then and now offer a higher upside potential. Having said these, we aren’t too convinced. The stock’s forward PE ratio is 32 and DPZ isn’t an AI company that’s growing its revenues by triple digits. Its revenue was $4.36 billion in 2021 and $4.48 billion in 2023. This means its revenue growth rate is less than the inflation rate since the end of 2021. A 6% revenue growth rate in Q1 is not that bad, but this stock shouldn’t trade at a forward PE of 32 unless it can double its revenues over the next 7 years or so.
4. Texas Roadhouse, Inc. (NASDAQ:TXRH)
Number of Hedge Fund Holders: 44
Founded in 1993 in Louisville, Kentucky, Texas Roadhouse, Inc. (NASDAQ:TXRH) is a casual dining restaurant operator, known for its steakhouse – Texas Roadhouse.
On the back of its revenue projections growth of 9% for the next three years, stock price upside potential of roughly 5%, and impressive Q1 2024 performance, Texas Roadhouse, Inc. (NASDAQ:TXRH) finds a sweet spot in our list of the 10 Best Restaurant Stocks to Buy Today.
An uptick of 13% in its revenue for Q1 2024, as compared to Q1 2023 drove the profitability of the company in the quarter, helping it bag an EPS of $1.7, which was an increase from its Q1 2023 EPS of $1.3! This, in turn, improved the profitability of the company in the quarter, as its margin rose from 7.4% to 8.6%.
The stock, as a result of the achieved growth in the year so far, has caught the attention of six more hedge funds who have taken interest in the stock, as of 2024 Q1. Hedge fund holdings’ value has gone up, hitting $1.1 billion, also justifying the stock’s place in our list. TXRH’s forward PE ratio is 29, however, we believe this is justified as the company doubled its revenues since 2020.
3. Chipotle Mexican Grill, Inc. (NYSE:CMG)
Number of Hedge Fund Holders: 60
Serving mouth-watering tacos and burritos, along with many other food items, Chipotle Mexican Grill, Inc. (NYSE:CMG) is an operator of 3,200 fast-casual restaurants.
Chipotle Mexican Grill, Inc.’s (NYSE:CMG) stock has gained popularity in the investors’ eyes, as the number of hedge fund holdings increased from 56 in Q4 2023 to 60 in Q1 2024, taking the total invested value to a massive $5.13 billion! This is on the back of an upside potential that the stock is carrying, which equals a decent 8.74%.
Moreover, the analysts expected the company’s EPS for Q1 2024 to be $11.68, whereas it recorded an EPS of $13.37! Moreover, 47 new brand outlets opened up during the quarter, resulting in a traffic increase of 5.4%. This helped the company bag a net income of $359.3 million, which was an increase as compared to $291.6, a year ago. Moreover, around 300 new locations are planned to open up in the whole year 2024, which will improve the profitability of the company over the coming quarters. Having said this, we think TXRH is more attractively priced than CMG because Chipotle increased its revenues by only 60% since 2020 as opposed to more than 100% for TXRH and trade at a forward P/E of 56 vs. half of that amount for TXRH.
2. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 63
McDonald’s Corporation (NYSE:MCD), a giant in the fast-food restaurant industry, that is based in the U.S., has let out franchises in over 100 countries!
The stock has an interest of 63 hedge funds, that have a stake of $2.3 billion in the stock! The biggest chunk of this belongs to Citadel Investment Group and Bridgewater Associates, who have investments of $665 million and $343.4 million, respectively.
This year hasn’t been very kind to MCD investors. The stock was trading above the $300 mark in January and currently sits at $250. Twenty-one years ago, during another fast food price war episode we remember MCD shares trading at $15. Recessions and price wars aren’t new to MCD and MCD shares may even lose more than half of its value, but it has proven to be a survivor over the last two decades. Currently it trades at a P/E of 21 which isn’t very expensive at all for this stable dividend stock either. If you don’t mind short-term volatility, MCD is a good long-term investment at its current price. It won’t make you rich, but it won’t disappoint you over the next 10-20 years. However, if you are a little bit greedy like us, you can be more patient and try to pick up MCD shares at lower prices over the next 12 months or so. Right now, the bears are in charge of the MCD shares and they think consumers at the low end of the income distribution have less disposable income to spend on restaurants. What they don’t remember is the fact that MCD shares declined by around 20% during the 2008-2009 recession while the broader market’s drawdown was around 50%.
1. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 69
Already being the biggest coffee chain in the world, Starbucks Corporation (NASDAQ:SBUX) has no plans to stop! It has set out a goal to take its total tally of locations to 55,000 by the year 2030 from 38,000, as of 2024. On the other hand, it aims to increase its number of U.S. outlets from 16,352 currently to 20,000! A growth of 4% is expected for its net openings in the U.S. in 2024. It’s the fastest-growing fast-food chain in the U.S., as reported by one of the articles by Insider Monkey.
Thus, it’s safe to say that the analysts are putting their faith in the company’s goals, as 10 more hedge funds have taken up a stake in the company’s stock, taking the total tally to 69! These stakes translate into a value of a whopping $2.7 billion! Furthermore, Starbucks Corporation’s (NASDAQ:SBUX) stock is carrying a satisfying upside potential of 16%.
However, the Q2 2024 performance of the company was quite disappointing, summed up by Laxman Narasimhan, the company’s CEO:
“Our performance this quarter was disappointing and did not meet our expectations. Our Q2 total company revenue was $8.6 billion, down 1% year-over-year. Our global comparable store sales declined 4% year-over-year, driven by a negative 3% comp growth in North America, led by declining traffic and a negative 11% comp growth in China. Our global operating margins contracted by 140 basis points to 12.8%, and our overall earnings per share declined by 7% to $0.68. While these results do not reflect our strengths, our capabilities or the opportunities ahead, we confront these challenges from a position of enduring strength.”
However, the following is what Rachel Ruggeri had to say about how the company views the current situation:
“First, Q2 was a challenging quarter for us as headwinds consistently persisted throughout the quarter leading us to revamp our actions and response plans to both unlock and attract demand. Second, our triple shot strategy continues to deliver efficiencies even in the face of headwinds reinforcing that we have the right strategy at the right time. Next, our fiscal year 2024 guidance has been revised to reflect our Q2 performance, year-to-date results as well as the near-term headwinds we’re experiencing. We, however, remain confident in our long-term growth opportunity and thus, committed to our strategy and the related investments. And finally, our disciplined approach to capital allocation drives our financial fortitude, reflecting shareholder commitment underpinned by our best-in-class dividends.
This allows us, to preserve both balance sheet durability and flexibility, positioning us to successfully navigate this complex and dynamic environment.”
While we acknowledge the potential of Starbucks Corporation as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SBUX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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