We recently published a list of 10 Best Restaurant Stocks To Buy According to Analysts. In this article, we are going to take a look at where GEN Restaurant Group, Inc. (NASDAQ:GENK) stands against other best restaurant stocks to buy according to analysts.
The restaurant industry has been challenged this year, with ingredient prices skyrocketing, rising operating expenses, and growing tipping fatigue. This has resulted in a shift in consumer preferences as Americans become more cautious about their spending patterns.
READ ALSO: 11 Best Fast Food Stocks To Invest In Right Now and 7 Best Restaurant Dividend Stocks to Buy Now.
Quick-service restaurants are integral to American culture, with around 83% of the families in the country dining out at these at least once a week, and one-third of Americans consuming fast food daily. However, a recent survey revealed that about 78% of people consider fast food a ‘luxury’ now and are cutting down on their consumption amid rampant inflation in the country.
Increased commodity and supply chain costs have also hurt the broader restaurant industry through surging menu prices, prompting Americans to cook cheaper meals at home. Carnegie Investment Counsel’s portfolio manager, Razmig Pounardjian, stated the following to Reuters in May:
“The lack of value offers has opened up consumers to shop for different options whether it be other (chains) or the grocery stores.”
According to a report in the National Public Radio (NPR), published in August, grocery prices grew only 1.1% over the past year, whereas the cost of restaurant meals soared 4.1%. Since mid-2020, restaurant prices have surged by nearly 24% compared to the cost of grocery items, which has grown 19% during this period. As a result, several notable restaurant chains have seen their earnings plummet this year, as consumers opt for a grocery splurge over expensive dining.
Despite pressures, it is not all doom and gloom for America’s restaurant industry. The market remains resilient, driven by the general desire among the citizens to dine at restaurants. Another critical factor that keeps the industry alive is how well it adapts to changing consumer trends and preferences through new offerings and value deals.
This year, the National Restaurant Association expects sales to top $1.1 trillion and add 200,000 new jobs to the economy, marking a new milestone for the industry. A restaurant ETF issued by AdvisorShares had gained 27.53% year-to-date as of the close of day on November 13, outperforming the broader market by two percentage points.
The downturn in inflation also bodes well for the future of the restaurant industry. Consumer prices have eased down from the peak of 9.1% in June 2022 to 2.6% in October 2024. While inflation rose 0.2% from last month and went higher for the first time since March this year, the condition remains favorable with the figure staying close to the Federal Reserve’s goal of a two percent annual rate.
Interest rate cuts are also likely to help boost restaurant stocks in the long run, as the low cost of borrowing would allow restaurant owners to go ahead with their expansion plans and also encourage consumer spending. In September this year, the Federal Reserve announced a 50-basis point rate cut, the first since March 2020. This was followed by a further quarter-point reduction in early November to bring interest rates to a range of 4.50% to 4.75%.
Our Methodology
For this article, we sifted through screeners to identify stocks in the restaurant industry that had an average share price upside potential of 20% or higher as of the close of day on November 12, 2024. Then we listed the top 10 stocks in ascending order of their average share price upside potential. We have only considered stocks that had at least three analyst ratings.
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 busy Korean barbecue restaurant, full of customers experiencing the traditional flavors.
GEN Restaurant Group, Inc. (NASDAQ:GENK)
Average Share Price Upside Potential as of November 12: 28.86%
GEN Restaurant Group, Inc. (NASDAQ:GENK) owns GEN Korean BBQ, which is a cook-it-yourself casual dining restaurant serving Korean and American-Korean cuisine. The company operates 43 restaurants located in Arizona, California, Florida, Hawaii, Nevada, New York, Texas, Oregon, and Washington.
It offers guests a dining experience where they serve as their chefs, preparing their meals on a grill at the center of the table, using pre-prepared ingredients provided by the restaurant. This helps GEN Restaurant Group, Inc. (NASDAQ:GENK) reduce its operating expenses by eliminating the need to hire professional chefs, often the highest-paid restaurant employees.
On November 12, GEN Restaurant Group, Inc. (NASDAQ:GENK) announced financial results for the third quarter of 2024. Revenue increased 7.8% year-over-year to $49.1 million, driven by the success of newer restaurants. It delivered $0.2 million in net income, translating to $0.01 of diluted earnings per share. Adjusted net income was posted at $0.9 million, or $0.03 of adjusted diluted earnings per share, beating expectations of a loss for the quarter.
The cost of goods sold declined to 31.4% in Q3 compared to 31.9% during the same period last year. Payroll and benefits expenses dropped 120 basis points to 30.5%. In contrast, general and administrative expenses as a share of total revenue stood at 9.1%, increasing from 8% in the previous quarter due to investments in infrastructure to support future growth and rising insurance costs.
GEN Restaurant Group, Inc. (NASDAQ:GENK) has opened three new restaurants recently, including two in October, which have performed exceptionally well. One of these, depending on how well the holiday season goes, is on track to become the new number one in terms of revenue. The other two are also likely to be in the top ten list. There is also a strong expansion plan in place, to open 10 to 11 restaurants this year. By 2026, the company expects to have 75 to 80 outlets.
GEN Restaurant Group, Inc. (NASDAQ:GENK) is one of the best restaurant stocks to buy according to analysts, with a consensus Strong Buy rating.
Overall, GENK ranks 6th on our list of best restaurant stocks to buy according to analysts. 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 GENK 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.