We recently compiled a list of the 10 Best Restaurant Stocks to Buy Today. In this article, we are going to take a look at where Chipotle Mexican Grill, Inc. (NYSE:CMG) stands against the other restaurant stocks.
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.
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).
A chef plating up a wide variety of dishes for a restaurant chain.
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.
Overall CMG ranks 3rd on our list of the best restaurant stocks to buy. You can visit 10 Best Restaurant Stocks to Buy Today to see the other restaurant stocks that are on hedge funds’ radar. While we acknowledge the potential of CMG 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 CMG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.