In this article, we discuss 10 buy the dip restaurant stocks to invest in now. If you want to see more stocks in this list, check out 5 Buy-The-Dip Restaurant Stocks to Invest in Now.
Since the restaurant industry has been hit hard by the ongoing macro headwinds, valuations have significantly contracted. However, market experts are debating whether to start purchasing beaten down restaurant stocks or if it’s time to put a halt on a buying spree. The more optimistic industry analysts have reported that the impact of inflation and softer demand has already been priced into most restaurant stocks.
According to Jefferies analyst Nick Setyan, after being hit with the pandemic and post-pandemic financial crisis, franchised and company-owned restaurant valuations now present highly attractive risk/reward ratios. He is positive about the restaurant industry as a whole, apart from a few names, and believes that the sector will prove to be largely recession-proof. The analyst observed that restaurants benefit in a recessionary environment, as food costs drop and labor inflation is controlled. Similarly, Bank of America analysts Sara Senatore and Katherine Griffin named Texas Roadhouse, Inc. (NASDAQ:TXRH) and Darden Restaurants, Inc. (NYSE:DRI) as their top picks based on historical performance in recessionary periods.
Some of the top buy the dip restaurant stocks to invest in include Starbucks Corporation (NASDAQ:SBUX), Domino’s Pizza, Inc. (NYSE:DPZ), and Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY).
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Our Methodology
We selected these stocks based on their long-term growth potential, optimistic analyst ratings, and strong hedge fund sentiment. We have mentioned the year-to-date share price declines as of July 22. The hedge fund sentiment was gauged from Insider Monkey’s Q1 2022 database of 900+ elite hedge funds.
Buy the Dip Restaurant Stocks to Invest in Now
10. Chuy’s Holdings, Inc. (NASDAQ:CHUY)
Number of Hedge Fund Holders: 11
YTD Share Price Decline as of July 22: 31.31%
Chuy’s Holdings, Inc. (NASDAQ:CHUY) is headquartered in Austin, Texas, and its restaurants offer Tex-Mex cuisine. The company has a chain of restaurants throughout 17 states. On June 24, Wedbush analyst Nick Setyan reiterated an Outperform rating on Chuy’s Holdings, Inc. (NASDAQ:CHUY) but lowered the price target on the shares to $30 from $37. As per the analyst, management’s commentary reflects some top-line softness lately, and fresh chicken and produce exposure means higher cost than present estimates. The analyst sees Chuy’s Holdings, Inc. (NASDAQ:CHUY) as among the best positioned casual diners to survive any likely hurdles in the future. Chuy’s Holdings, Inc. (NASDAQ:CHUY) stock has declined 31.31% year to date, which makes it an attractive restaurant name to buy on the dip.
Among the hedge funds tracked by Insider Monkey, Chuy’s Holdings, Inc. (NASDAQ:CHUY) was part of 11 hedge fund portfolios at the end of Q1 2022, up from 7 funds in the prior quarter. The collective stakes increased to $27.8 million in Q1 from $16.2 million in the last quarter. Jim Simons’ Renaissance Technologies is the biggest position holder in the company, with 270,100 shares worth about $7.3 million.
In addition to Starbucks Corporation (NASDAQ:SBUX), Domino’s Pizza, Inc. (NYSE:DPZ), and Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY), Chuy’s Holdings, Inc. (NASDAQ:CHUY) is one of the notable restaurant stocks to buy on the dip.
9. Wingstop Inc. (NASDAQ:WING)
Number of Hedge Fund Holders: 21
YTD Share Price Decline as of July 22: 39.36%
Headquartered in Addison, Texas, Wingstop Inc. (NASDAQ:WING) is an American multinational chain of themed fast casual fast food restaurants that sell chicken wings. Analysts are positive on the restaurant prospects as commodity inflation is absorbed somewhat easily and the industry tackles staff shortages. Wingstop Inc. (NASDAQ:WING) is one of the beaten down restaurant stocks to invest in now, with shares down about 40% from their peak. Wingstop Inc. (NASDAQ:WING) is also a dividend payer. The company has been distributing quarterly dividends since 2016.
Truist analyst Jake Bartlett on July 1 maintained a Buy recommendation on Wingstop Inc. (NASDAQ:WING) but lowered the price target on the shares to $130 from $160 as part of a broader research note on Restaurants. The analyst is optimistic about the store reopening data from latest web scrapes. He strengthened his FY22 net openings outlook to 233 from 222 as domestic openings seem to have exceeded expectations, but attributed his slashed price target to increasing macro risks.
According to Insider Monkey’s data, 21 hedge funds were bullish on Wingstop Inc. (NASDAQ:WING) at the end of March 2022, with collective stakes worth $212 million, up from 18 funds in the prior quarter, holding stakes in the company valued at $186.4 million. Terry Smith’s Fundsmith LLP held the leading position in Wingstop Inc. (NASDAQ:WING), comprising 832,538 shares worth $97.6 million.
Here is what ClearBridge Investments has to say about Wingstop Inc. (NASDAQ:WING) in its Q2 2021 investor letter:
“Other new buys included Wingstop. Wingstop, meanwhile, in the consumer discretionary sector, is doing to chicken wings what Domino’s did to pizza. With a strong digital model, the franchise-based business has a long runway for growth with an existing base of 1,500 stores expanding to potentially 6,000 units and compelling franchisee economics.”
8. Dine Brands Global, Inc. (NYSE:DIN)
Number of Hedge Fund Holders: 24
YTD Share Price Decline as of July 22: 12.41%
Dine Brands Global, Inc. (NYSE:DIN) is a California-based food and beverage company that franchises full-service restaurants – Applebee’s Neighborhood Grill & Bar and International House of Pancakes (IHOP). The stock has declined over 12% year to date as of July 22, however, IHOP has become an international brand and Applebee’s is a mainstream American casual dining spot, which ensures that demand and revenue will remain stable and the company can weather the macro environment. This makes Dine Brands Global, Inc. (NYSE:DIN) one of the best buy the dip restaurant stocks to invest in now.
On July 19, Raymond James analyst Brian Vaccaro reaffirmed an Outperform rating on Dine Brands Global, Inc. (NYSE:DIN) but lowered the price target on the stock to $85 from $95 ahead of the Q2 earnings report on August 9. The analyst expects 2Q22 revenue to rise 2% year over year to $238.0 million, reflecting Applebee’s average weekly sales jumped 12.8% versus 2019 and IHOP’s average weekly sales increased 0.4% compared to 2019. The analyst thinks shares are undervalued given the company’s 100% franchise model, increasing unit growth, and a higher cash position, which supports additional share repurchases and a robust dividend yield.
Among the hedge funds tracked by Insider Monkey, 24 funds were long Dine Brands Global, Inc. (NYSE:DIN) at the end of Q1 2022, with combined stakes worth about $219 million. Glenn Fuhrman and John Phelan’s MSD Capital is the largest shareholder of the company, with 740,545 shares worth $57.7 million.
7. The Wendy’s Company (NASDAQ:WEN)
Number of Hedge Fund Holders: 25
YTD Share Price Decline as of July 22: 13.69%
The Wendy’s Company (NASDAQ:WEN) is an Ohio-based holding company for Wendy’s, the American fast food chain. The Wendy’s Company (NASDAQ:WEN) is a popular American restaurant that is present in 30 countries. With an average of 12 million annual loyalty members, The Wendy’s Company (NASDAQ:WEN) has approximately 7,000 outlets worldwide. The stock is currently down about 14% year to date, which makes it a good time to buy it on the dip.
On July 20, Deutsche Bank analyst Brian Mullan raised the price target on The Wendy’s Company (NASDAQ:WEN) to $24 from $20 and kept a Buy rating on the shares ahead of the Q2 results. The analyst said that investors are awaiting an “in-linish” U.S. same store-sales result, compared to current consensus of over 2.6%.
Among the hedge funds tracked by Insider Monkey, 25 funds were long The Wendy’s Company (NASDAQ:WEN) at the conclusion of Q1 2022, compared to 26 funds in the earlier quarter. Nelson Peltz’s Trian Partners held the leading stake in the company, consisting of 25.3 million shares worth $556.5 million.
Like Starbucks Corporation (NASDAQ:SBUX), Domino’s Pizza, Inc. (NYSE:DPZ), and Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY), elite hedge funds are pouring into The Wendy’s Company (NASDAQ:WEN).
6. Domino’s Pizza, Inc. (NYSE:DPZ)
Number of Hedge Fund Holders: 27
YTD Share Price Decline as of July 22: 27.83%
Domino’s Pizza, Inc. (NYSE:DPZ) is an American multinational pizza restaurant chain. On July 21, the company declared a $1.10 per share quarterly dividend, in line with previous. The dividend is payable on September 30, for shareholders of record on September 15. The stock has dropped about 28% year to date.
Oppenheimer analyst Brian Bittner raised the price target on Domino’s Pizza, Inc. (NYSE:DPZ) to $445 from $435 on July 22 and reiterated an Outperform rating on the shares. As per the analyst, demand trends showcased a sequential improvement in Q2 mainly due to higher carry-out growth, and management reaffirmed techniques to fix staffing issues in its delivery business.
Among the hedge funds tracked by Insider Monkey, Domino’s Pizza, Inc. (NYSE:DPZ) was part of 27 hedge fund portfolios at the end of March 2022, with collective stakes worth $1.8 billion. Bill Ackman’s Pershing Square was the largest shareholder of the company, with more than 2 million shares worth $841.70 million.
Here is what LRT Capital Management has to say about Domino’s Pizza, Inc. (NYSE:DPZ) in its Q1 2022 investor letter:
“Domino’s Pizza is the world’s largest franchisor of pizza restaurants with over 13,800 locations in 85 countries. As for any restaurant operator, the key metric to consider for Domino’s Pizza is same-store-sales (SSS) growth. Growing same-store-sales are ultimately how a restaurant business increases earnings from its existing assets. The company continues to impress in this criterion with SSS having grown in the U.S. for 40 consecutive quarters, and an astounding 109 straight quarters internationally.
Two-thirds of the company’s stores are currently abroad, and the international segment remains the company’s largest growth opportunity, as the penetration of convenient fast food remains lower abroad than in the United States. Pizza is a product with exceptionally high gross margins, one that “translates” well across different cultures, and one that literally “travels well”, not losing much of its appeal when delivered in a cardboard box. The rise of 3rd party delivery platforms such as Uber Eats, Doordash and Grubhub is challenging the pizza category as it has expanded the number of choices consumers have for convenient takeout. However, the economics of food delivery remain challenging for most restaurants and platforms alike57, while pizza delivery continues to be highly profitable. Regardless of how the “delivery wars” currently playing out end, Domino’s financial results show little impact of this increased competition, and the company continues to deliver exceptional financial performance.
Domino’s Pizza stock is not optically cheap based on forward earnings, however, the company has routinely reported earnings growth of over 20% in almost all quarters since 2009. Given the company’s high growth rate, international growth opportunities, and capital light business model, which allows for returns on invested capital of over 40%, we are happy to continue to hold the shares.”
Click to continue reading and see 5 Buy-The-Dip Restaurant Stocks to Invest in Now.
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Disclosure: None. 10 Buy-The-Dip Restaurant Stocks to Invest in Now is originally published on Insider Monkey.
