We recently published a list of 11 Best Fast Food Stocks To Invest In Right Now. In this article, we are going to take a look at where Jack in the Box Inc. (NASDAQ:JACK) stands against other best fast food stocks.
Fast food is integral to American culture and remains popular among adults and children. According to a report by the CDC, one-third of Americans consume fast food every day, while 83% of the country’s families dine out at a fast food restaurant at least once a week. Around 45% of the population aged between 20-39 consume fast food every day, while the indulgence rate of those between 40-59 years of age is slightly lower at 37.7%. On the other hand, 34% of children regularly eat fast food daily.
READ ALSO: 7 Cheap Food Stocks to Buy According to Analysts.
However, an increasing number of Americans are beginning to pull down on their consumption and eating less fast food per week due to high prices. A survey by Lending Tree in May 2024 highlighted that about 78% of the citizens consider fast food a ‘luxury’ after rampant inflation in the country has forced Americans to reassess their spending habits. Surge pricing in restaurants has also added to their worries, with about 72% confessing that they would prefer having fast food during discount hours.
Over the past year, menu prices have risen considerably in the US across the wider restaurant industry, driven by increased commodity and supply chain costs. This has boosted consumer desire in the country to eat 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.”
Despite challenges, the American restaurant industry remains resilient, primarily because it adapts well to changing consumer habits. The National Restaurant Association has forecast sales to top the $1 trillion mark in 2024 for the first time. It also expects the industry to create 200,000 new jobs, citing what is generally a strong demand from Americans to eat at restaurants.
A restaurant ETF issued by AdvisorShares, which invests exclusively in the restaurant and food industry has gained 18.32% YTD, outperforming the broader market by over six percentage points, as of the close of October 31. The Fed rate cuts will likely help restaurant stocks as they would to the broader market. The low cost of borrowing will boost consumer spending and ease the burden on restaurant owners, allowing them to go ahead with their expansion plans.
In September this year, the Federal Reserve announced a 50-basis point rate cut – the first since March 2020 – to lower the range of interest rates from 4.75% to 5%. Details emerging from the minutes of the September meeting disclosed a ‘substantial majority’ of central bankers backing the cut, which has raised optimism among investors for further cuts ahead in the November meeting.
Another encouraging recent trend has been the downturn in the country’s inflation, which dropped to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate.
The front counter of the restaurant, with the menu illuminated in the background.
Our Methodology
We used Finviz’s restaurant industry screener to sample stocks for this article and then identified the companies that dealt with fast food. Among them, we picked the top 11 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company. Data on hedge funds was sourced from Insider Monkey’s database of 912 hedge funds for the second quarter of 2024.
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).
Jack in the Box Inc. (NASDAQ:JACK)
Number of Hedge Fund Holders: 16
Jack in the Box Inc. is an American restaurant company that specializes in quick-service food. It was founded in 1951 in San Diego, California, where it is headquartered. The hamburger giant operates around 2,200 restaurants across 22 states of the US. The company also owns Del Taco, a Mexican fast-food chain, that has more than 600 restaurants nationwide.
The company’s share price has dropped by 38% YTD due to a series of challenges the broader restaurant industry continues to face, such as rising labor costs, commodity prices, and changes in consumer preferences amid high inflation. These have had an impact on Jack in the Box Inc. (NASDAQ:JACK)’s financial performance.
On August 6, the company reported its results for Q3 2024. During the quarter, same-store sales for the company declined by 2.2%, with company-owned same-store sales up 0.1% and franchise restaurant comps decreasing by 2.4%. Restaurant-level margin totaled $21.1 million, reducing by 80 basis points to 21%, driven by higher labor and other operating costs. The franchise-level margin was $74.6 million, or 41.1%, down from $75.3 million a year ago. This was attributed to an overall drop in sales and the resulting decrease in royalty.
Del Taco’s performance also suffered during Q3, with same-store sales decreasing by 3.9%, comprising a 4.1% drop in franchise same-store sales and company-operated same-store sales going down 3.5%. Restaurant-level margin was $8.8 million, or 13.4%, down 400 basis points year-over-year. During the quarter, Jack in the Box Inc. (NASDAQ:JACK) also recorded a non-cash goodwill impairment of $162.6 million for Del Taco, because of which the company had a consolidated diluted loss per share of $6.26 compared to EPS of $1.41 during the same period in 2023.
Despite dropping sales, the company is expanding its operations, because of which the general sentiment around the stock is positive. It has opened 14 Jack in the Box restaurants in 2024 so far and is planning to enter the Chicago market in fiscal year 2025 and open up across 10 locations in partnership with franchisees. This is in addition to the fast-food chain’s entry into Florida next year.
Del Taco has also had 12 openings year-to-date and is projected to have close to 15 new restaurants this year. Its recent openings in Tallahassee, Port Orange, and Chesapeake have been a tremendous success, posting record first-week sales. At Del, the company is also seeing improved guest feedback, especially for its menu tests.
Late-night sales are also on the rise for both Jack and Del, indicating a potential for sales improvement ahead. Wall Street analysts have a consensus Buy rating on Jack in the Box Inc. (NASDAQ:JACK) and anticipate a median upside potential in its share price of over 38%. Amongst hedge funds tracked by the financial website, Insider Monkey, 16 held a stake in the company as of Q2 2024, making it one of the best fast food stocks to invest in right now.
Overall, JACK ranks 11th among the 11 best fast food stocks to invest in right now. While we acknowledge the potential of fast food 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 JACK 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.