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 Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) 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 close-up of a burger on a grill with steam rising in the background.
Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB)
Average Share Price Upside Potential as of November 12: 142.72%
Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) is an American chain of casual dining restaurants, that serve gourmet burgers, brews, and other food items.
On November 6, the company announced financial results for the third quarter of 2024. Revenue was posted at $274.6 million, down by $2.9 million from last year due to the impact of the closure of nine restaurants over the past year. However, comparable restaurants revenue grew 0.6% due to an uptick in guest check average.
Restaurant-level operating profit was at 9% of the total revenue, decreasing by 210 basis points year-over-year because of a lower guest count and an increase in discount levels during the quarter. These factors also resulted in an adjusted EBITDA of $2.1 million, which fell well below the $4.7 million mark during the same period last year. As a result, Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) posted a net loss of $18.9 million for the quarter, worsening from a loss of $8.2 million in Q3 2023.
However, there were also numerous positives from the quarter. Red Robin’s Loyalty 2.0 program’s relaunch has been a success, averaging 150,000 sign-ups per four weeks. New member transactions have surged 141% year-over-year, whereas the number of members transacting twice or more has increased by 12% compared to the prior year. Moreover, over 400,000 previously lapsed loyalty members have re-engaged with Red Robin as part of the new loyalty program.
Effective marketing strategies through digital and social media are also driving traffic to Red Robin restaurants. Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) is also seeing improved guest satisfaction scores, which are now the highest since 2016 and above the industry average. This demonstrates the value guests perceive from Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB)’s menu upgrades and hospitality.
While the company expects ongoing promotional offers to carry a net cost in the short run, it anticipates that these will help achieve positive traffic growth and increased profitability in 2025. Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) is the best restaurant stock to buy according to analysts, with the highest share price upside potential. Analysts also have a consensus Strong Buy rating for the stock.
Overall, RRGB ranks 1st 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 RRGB 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.