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 Jack in the Box Inc. (NASDAQ:JACK) 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).

Jack in the Box Inc. (NASDAQ:JACK)

Average Share Price Upside Potential as of November 12: 39.09%

Jack in the Box Inc. (NASDAQ:JACK) is an American restaurant company that specializes 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.

The stock has been under pressure this year, having dropped by over 45% YTD due to rising labor costs, an increase in commodity prices, and a change in consumer habits amid rampant inflation in the country. These have affected JACK’s financial performance.

During Q3 2024, same-store sales for Jack in the Box Inc. (NASDAQ:JACK) declined by 2.2%, with company-owned same-store sales growing 0.1%, while franchise restaurant comps decreased by 2.4%. The restaurant-level margin dropped by 0.8% to $21.1 million, which was attributed to higher labor and operating expenses. The franchise-level margin was $74.6 million, down from $75.3 million a year ago. This was due to an overall drop in sales and the resulting decrease in royalty.

Del Taco’s same-store sales also decreased by 3.9% during the quarter. Company-operated restaurants saw a 3.5% decline in same-store sales, whereas franchise same-store sales dropped by 4.1%. Restaurant-level margin was $8.8 million, or 13.4%, down 400 basis points from last year. The company also recorded a non-cash goodwill impairment of $162.6 million for Del Taco, which has resulted in a consolidated diluted loss per share of $6.26 compared to an EPS of $1.41 in the prior year.

Cash flow from operations was at $45.3 million in Q3. Jack in the Box Inc. (NASDAQ:JACK) spent $24.7 million in capital expenditure including investments in technology, digital initiatives, and the opening of new restaurants. It also repurchased 272,000 shares of common stock during the quarter. On August 2, it declared a cash dividend of $0.44 per share to be paid in September.

Despite a downturn in sales, Jack in the Box Inc. (NASDAQ:JACK) has a robust expansion plan in place, opening 14 restaurants this year, and plans to enter the Chicago and Florida markets in fiscal year 2025. Del Taco has also had 12 openings this year, with plans to open three more outlets before the year closes. Some of its recent openings have been a tremendous success, posting record first-week sales. Late-night sales are also on the rise for both Jack and Del, indicating an encouraging potential for sales ahead.

Wall Street analysts have a consensus Buy rating for Jack in the Box Inc. (NASDAQ:JACK), with a share price upside potential of 39.09%, making it one of the best restaurant stocks to buy according to analysts.

Overall, JACK ranks 4th 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 JACK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article is originally published at Insider Monkey.