This article looks at the 8 cheap restaurant stocks to buy according to hedge funds. We also dive deep into the trends in the industry, including changing consumer preferences amid inflation, and a shift towards automating restaurant processes.
Soaring ingredient prices, operating expenses, and tipping fatigue have pressured the restaurant industry over the last few years. According to a report by National Public Radio (NPR) in August, the price of grocery items in the U.S. has grown 19% since the mid-2020s, compared to the cost of restaurant meals, which have risen by nearly 24%.
READ ALSO: 10 Best Restaurant Stocks To Buy According to Analysts and 11 Best Fast Food Stocks To Invest In Right Now.
This has resulted in a shift in consumer preferences as Americans become more cautious about where they spend their money. A survey by Lending Tree in May 2024 has revealed that 78% of Americans now consider fast food, which is integral to American culture, a ‘luxury’, forcing them to reassess their spending habits. Around 72% of the respondents said that they prefer having fast food during discount hours because of surge pricing in restaurants.
Despite the headwinds, it is not all lost for the restaurant industry, which continues to remain resilient, driven by the common desire among Americans to dine out. A critical factor that keeps the market thriving is how well it adapts to changing consumer preferences and price sensitivities. Several notable restaurant chains have been offering value deals, new menus, and discounts to lure customers during the holiday season.
Restaurants are also increasingly adopting automation in their quest for operational efficiencies and cost savings in an industry with thin margins. While the initial investment in technology is substantial, restaurant owners are hopeful that these upfront expenditures will enhance customer experience, reduce labor costs, and even be a solution to the challenges associated with labor shortages.
Despite facing temporary challenges, restaurant stocks have maintained strong performance this year. A restaurant ETF issued by AdvisorShares had gained 32.10% year-to-date as of the close of day on November 29, outperforming the broader market by just under six percentage points. According to data from the U.S. Census Bureau, food services and drinking places in October saw a 4.3% increase in sales compared to the same period last year.
The downturn in inflation is also a positive indicator for the industry. Consumer prices have eased down from the peak of 9.1% in June 2022 to 2.6% in October 2024. Interest rate cuts are also expected to boost the restaurant industry, as the low cost of borrowing would allow owners to go ahead with their expansion plans and also encourage consumer spending.
With that said, let’s now shift focus and discuss the 8 cheap restaurant stocks to buy according to hedge funds.
A bustling, upscale restaurant with the company’s logo atop the building.
Our Methodology
We sifted through screeners to identify restaurant stocks with a forward P/E ratio of under 16 as of the close of the day on November 25, 2025. From there, we selected the 8 stocks with the highest number of hedge fund investors, based on Insider Monkey’s database of over 900 prominent hedge funds as of Q3 2024. The 8 cheap restaurant stocks have been ranked in ascending order of the number of hedge funds holding stakes in them.
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).
8 Cheap Restaurant Stocks to Buy According to Hedge Funds:
8. RCI Hospitality Holdings, Inc. (NASDAQ:RICK)
Forward Price to Earnings Ratio: 12.72
Number of Hedge Fund Holders: 9
RCI Hospitality Holdings, Inc. (NASDAQ:RICK) is one of the leading companies in adult nightclubs, and sports bars-restaurants, operating in more than 60 locations through its subsidiaries. It owns the Bombshells Restaurant & Bar, a military-themed casual dining sports bar/restaurant chain.
On August 8, the company announced financial results for the third quarter of 2024. Revenue stood at $76.2 million, down 1.2% year-over-year. GAAP EPS was logged at a loss of 56 cents per share, reflecting a non-cash impairment of $17.9 million. The Nightclubs segment showed an impressive 1.7% increase in same-store sales from last year to reach $62.8 million. The segment benefited from a strong pro sports playoff line-up and two new and reformatted clubs.
Bombshells’ revenue was posted at $13.1 million, up 2.3% from Q2 but down 8.7% from last year. However, analysts believe that the increase in revenue is an encouraging sign as seasonal trends did not significantly influence it. RCI Hospitality Holdings, Inc. (NASDAQ:RICK)’s Back to Basics initiative, launched in February of this year, has been credited for the improved results. The business approach aims to ensure the efficient and profitable functioning of its restaurants and clubs, prioritize increasing same-store sales, improving margins, and reformatting and rebranding existing underperforming locations.
As part of these efforts, the company, in early November, decided to divest three underperforming locations. RCI Hospitality Holdings, Inc. (NASDAQ:RICK) has also increased marketing initiatives and promotions to attract customers, which can bode well for the quarters ahead. On November 11 Veterans Day, Bombshells Restaurant & Bar announced free entrees for veterans at locations in Houston, Dallas, Austin, and San Antonio, with other food items at a 20% discount.
RCI Hospitality Holdings, Inc. (NASDAQ:RICK) ranks eighth in our list of cheap restaurant stocks to buy according to hedge funds.
7. El Pollo Loco Holdings, Inc. (NASDAQ:LOCO)
Forward Price to Earnings Ratio: 15.37
Number of Hedge Fund Holders: 13
El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) is a restaurant chain in the United States, specializing in food that integrates the culinary traditions of Mexico with the lifestyle of Los Angeles. It is known for serving fire-grilling citrus-marinated chicken. According to CNBC, the company operates around 495 restaurants, of which 172 are company-operated, while 323 are franchised restaurants.
It is among the cheap restaurant stocks to buy according to hedge funds. The company’s share price has lost around 6.5% of its value over the last three months and has underperformed against other major players in the industry. The dip in share value can be attributed to a decline in customer traffic and the broader economic challenges that have made consumers price-sensitive and cautious about their spending patterns.
Realizing that customers are looking for value, El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) has started offering aggressive value deals, such as the Taco Tuesday promotion, which offers two tacos for $5 every Tuesday. The restaurant chain has also announced the addition of the Original Pollo Bowl to its $5 offerings.
On October 31, El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) announced financial results for Q3 2024. Revenue for the quarter was posted at $120.4 million, close to last year’s figure during the same period. Company-operated restaurant revenue decreased by 1.5%, driven by a dip in revenue from the re-franchising of 19 company-operated restaurants to existing franchisees in prior quarters. Franchise revenue surged 10.5%, fueled by a 2.7% increase in franchise-comparable restaurant sales.
The company is also making progress in its cost-saving initiatives through a team dedicated to enhancing labor productivity and controlling expenses. These measures are likely to help El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) approach margins of around 18% next year.
The restaurant chain also has a robust development roadmap in place, with plans to open at least ten new locations in 2025. According to Insider Monkey’s database for Q3 2024, 13 hedge funds held investments in the company.
6. Denny’s Corporation (NASDAQ:DENN)
Forward Price to Earnings Ratio: 12.09
Number of Hedge Fund Holders: 13
Denny’s Corporation (NASDAQ:DENN) is one of the largest full-service restaurant chains in the United States, with 1,586 restaurants. The chain is known for its diverse menu and 24/7 service, targeting various consumers, including late-night diners and budget-conscious eaters.
The company recently announced the closing of 150 restaurants over the next year, with about fifty locations set to cease by the end of this year, while the remaining are expected to be shut down in 2025. Denny’s Corporation (NASDAQ:DENN) is targeting underperforming locations that burden its financial position. The company is also easing up on the requirement for its restaurants to stay open around the clock, joining a common trend in the industry, since the pandemic, to slash operating hours.
On October 22, Denny’s Corporation (NASDAQ:DENN) announced financial results for the third quarter of 2024. Total operating revenue was $111.8 million, down 2% from last year, driven by several reasons, including a decrease in equivalent units, franchise occupancy revenue, and a dip in fees associated with the sale of kitchen equipment. Net income for the quarter stood at $6.5 million, or $0.12 per diluted share.
CEO, Kelli Valade, stated that the relaunch of Denny’s value menu and the expansion of its virtual brand, Banda Burrito, helped the company outperform the BBI Family Dining index in domestic systemwide same-restaurant sales for the third successive quarter. Keke’s Breakfast Cafe also experienced improved same-restaurant sales compared to Q2, driven by the company’s solid marketing strategies during the quarter.
Wall Street analysts remained bullish on the stock, with a consensus Strong Buy rating and a share price upside potential of 17%. According to Insider Monkey’s database for Q3 2024, 13 hedge funds held a stake in the company. Considering its low forward P/E ratio, Denny’s Corporation (NASDAQ:DENN) is one of the top cheap restaurant stocks to buy according to hedge funds.
5. Jack in the Box Inc. (NASDAQ:JACK)
Forward Price to Earnings Ratio: 8.93
Number of Hedge Fund Holders: 16
Jack in the Box Inc. (NASDAQ:JACK) is an American restaurant company specializing in quick-service food. The hamburger giant operates around 2,200 restaurants across 22 states. It also owns Del Taco, a Mexican fast-food chain with more than 600 restaurants nationwide.
Rising labor costs, a surge in ingredient prices, and changing consumer preferences amid rampant inflation have pressured JACK’s financial performance this year, resulting in its share price dropping by 40% year-to-date.
During its recent Q4 2024 earnings call on November 20, the company reported a drop in same-store sales for both Jack in the Box and Del Taco. Consolidated adjusted EBITDA for the quarter was $65.5 million, down 4.2% compared to the same period last year because of the impacts of lower sales and Del Taco re-franchising. The company was also pushed by the new minimum wage regulation in California, which further drove up its labor costs.
Despite a dip in sales, Jack in the Box Inc. (NASDAQ:JACK) is undergoing robust expansion. The company opened 16 new locations during the quarter, with plans to enter the Florida market in fiscal year 2025. There have been 30 new Jack openings for the full year, the highest number in over a decade. JACK is also witnessing impressive digital sales growth (14% in Q4), which bodes well for the company’s efforts to improve to increase its loyalty guest base.
Cash flow from operations stood at $29.6 million in Q4 and $68.8 million for the full year. Capital expenditures, which include digital initiatives and investments in technology, were $29.7 million for the quarter and $115.5 million for the full year. Jack in the Box Inc. (NASDAQ:JACK) is also returning cash to shareholders through dividends and share repurchases. On November 14, the Board declared a cash dividend of 44 cents per share to be paid on December 30. For FY 2024, it repurchased approximately 1.1 million shares for $70 million.
Jack in the Box Inc. (NASDAQ:JACK) is among the top cheap restaurant stocks to buy according to hedge funds.
4. Arcos Dorados Holdings Inc. (NYSE:ARCO)
Forward Price to Earnings Ratio: 13.26
Number of Hedge Fund Holders: 19
Arcos Dorados Holdings Inc. (NYSE:ARCO) is a McDonald’s franchisee that operates over 2,140 restaurants in four geographical divisions: Brazil, the Caribbean, North Latin America, and South Latin America.
In October of this year, the company announced that it would exercise the option to renew the Master Franchise Agreement (MFA) with McDonald’s for another 20 years. The agreement will run from 2025 to 2045 and presents a significant opportunity for future growth. It is expected to include a royalty of gross sales of 6% for the first 10 years, 6.25% for the following 5 years, and 6.5% for the final five years of the agreement.
On November 13, Arcos Dorados Holdings Inc. (NYSE:ARCO) reported another strong quarter, with USD revenue reaching $1.1 billion – a new high for Q3. This was the 14th straight quarter when the guest count rose, driven by traffic growth throughout the region. This also resulted in a 32.1% increase in systemwide comparable sales. USD EBITDA was the second-highest for the third quarter. Net income stood at $35.2 million, or $0.17 per share, surpassing estimates of $0.16 per share.
Digital channel sales grew 16% compared to last year, representing 58% of systemwide sales in Q3. Delivery and drive-thru channels continue to offer an unmatched competitive advantage to Arcos Dorados Holdings Inc. (NYSE:ARCO) and had another robust quarter, contributing significantly to off-premise channel sales.
ARCO is among the best cheap restaurant stocks to buy according to hedge funds. Wall Street analysts have a consensus Strong Buy rating for the stock, with an average share price upside potential of 67%. According to Insider Monkey’s database for Q3 2024, 19 hedge funds had investments in the company.
3. The Cheesecake Factory Incorporated (NASDAQ:CAKE)
Forward Price to Earnings Ratio: 13.39
Number of Hedge Fund Holders: 22
The Cheesecake Factory Incorporated (NASDAQ:CAKE) is an American restaurant company, that owns over 330 restaurants in the United States and Canada under the brands The Cheesecake Factory, North Italia, and a collection within Fox Restaurant concepts. The company also has a bakery division, that prepares food items, including cheesecakes, for its restaurants and international licensees.
CAKE’s shares have risen by over 9% since the announcement of financial results for the third quarter of 2024. Total revenue during Q3 stood at $865 million, with comparable sales outperforming the industry, reflecting consistent consumer demand for the brand. EPS was posted at 58 cents, beating estimates of $0.47 per share and growing 49% year-over-year. During the quarter, The Cheesecake Factory Incorporated (NASDAQ:CAKE) returned $14.2 million to shareholders, which included $1.1 million in share repurchases and $13.1 million in dividends.
The Cheesecake Factory Incorporated (NASDAQ:CAKE) has a robust expansion plan in place. It has opened 17 new restaurants this year and is on track to meet its target of opening 22 new restaurants for the full year. CAKE expects to further accelerate its unit growth, with plans to open as many as 24 new restaurants across its portfolio of concepts in fiscal year 2025.
Despite a challenging economic environment, CAKE’s robust financial performance indicates its strong brand recognition and customer loyalty, which it can leverage as it enters new locations and markets. The Cheesecake Factory Incorporated (NASDAQ:CAKE) has a low forward price-to-earnings ratio, which makes it one of the 8 cheap restaurant stocks to buy according to hedge funds. As per Insider Monkey’s database for Q3 2024, 22 hedge funds held a stake in the company.
2. Dine Brands Global, Inc. (NYSE:DIN)
Forward Price to Earnings Ratio: 5.83
Number of Hedge Fund Holders: 23
Dine Brands Global, Inc. (NYSE:DIN) is an American company that owns and franchises three restaurant chains: Applebee’s Neighborhood Grill + Bar, the International House of Pancakes (IHOP), and Fuzzy’s Taco Shop.
DIN has been focusing on marketing campaigns and value-driven promotions during the holiday season to drive sales. Applebee’s recently entered into a strategic partnership as the official grill and bar of the NFL and launched an advertisement featuring notable players and coaches highlighting its $0.50 boneless wings campaign. Moreover, on Veterans Day in November, it offered free meals to active and retired military officers to honor their service to the nation.
CEO John Peyman acknowledged during the Q3 2024 earnings call on November 6 that Dine Brands Global, Inc. (NYSE:DIN) was pressured by consumer pullback and a high promotional activity environment in the industry. Total consolidated revenue dropped 3.8% during the quarter to reach $195 million, with both Applebee’s and IHOP experiencing a dip in comparable sales. Another factor that contributed to the fall was a decline in franchise and rental revenues. EPS for the quarter stood at $1.28, falling shy of forecasts by six cents.
However, the company’s financial position remained strong. Dine Brands Global, Inc. (NYSE:DIN) ended the quarter with improved liquidity. It finished with total unrestricted cash of $169.6 million, up 10.5% sequentially from the second quarter. DIN also paid $7.8 million in dividends in Q3. According to Insider Monkey’s database for Q3 2024, 23 hedge funds held investments in the company, up from 19 at the end of the second quarter of 2024. DIN is among the top cheap restaurant stocks to buy according to hedge funds.
1. Bloomin’ Brands, Inc. (NASDAQ:BLMN)
Forward Price to Earnings Ratio: 6.51
Number of Hedge Fund Holders: 27
Bloomin’ Brands, Inc. (NASDAQ:BLMN) is an American restaurant holding company that owns four brands: Outback Steakhouse, Fleming’s Prime Steakhouse & Wine Bar, Carrabba’s Italian Grill, and BonefishGrill.
On November 6, the company signed a Purchase Agreement with Vinci Partners for the strategic re-franchising of its Brazilian operations, selling 67% of its ownership for approximately $243 million. According to analysts, the deal is likely to simplify BLMN’s business and aid in improving operations by focusing on domestic operations.
BLMN’s share price has slumped by over 50% year-to-date due to industry-wide pressures. The company generated a revenue of $1 billion during Q3, down 4% year-over-year due to a decline in comparable restaurant sales and the effect of foreign currency translation of the Brazilian Real relative to the USD. EPS was posted at $0.21, beating estimates by one cent.
The company upsized its revolver to $1.2 billion during the quarter, which is expected to provide improved liquidity and broader financial flexibility. BLMN’s total debt, net of cash, was $1 billion. This year, the restaurant company has repurchased 10.1 million shares for $266 million. On October 22, BLMN announced a quarterly dividend of $0.24 per share, which is payable in December.
CEO Mike Spanos, who came into this role in September, is determined to turn things around. He comes in with a reputation for having led established organizations in the past through challenging environments with his customer-first mindset. Despite the headwinds, the overall sentiment around the stock is encouraging, as Wall Street analysts anticipate a 33% uptick, on average, in its share price. According to Insider Monkey’s database for Q3 2024, 27 hedge funds had investments in the company, up from 23 at the end of Q2.
Overall, BLMN ranks first among the 8 Cheap Restaurant Stocks to Buy According to Hedge Funds. While we acknowledge the potential of restaurant companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BLMN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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