In this article we will take a look at the top 10 restaurant stocks under $10.
There has been a lot of interest around the pent-up demands of consumers as the economy slowly starts to reopen following the coronavirus vaccine rollout in the United States. One sector expected to reap immediate benefits of the reopening is the restaurant business. According to data released by the National Restaurants Association (NRA), 83% of adults in the country have expressed a desire to eat out at restaurants following the easing of restrictions. This sentiment is especially strong in the older generation, 90% of whom express the same feeling.
Future Outlook of the Restaurant Industry
It would be no exaggeration to say that even though there is a widespread emotional longing for the dining-out experience after months in lockdown, the reality on the ground spells out much harsher facts for many restaurants. About 17% of the restaurants in the US have permanently closed during the pandemic, with more than 10,000 closures coming in the last three months of 2020. According to a survey conducted by NRA, 87% of restaurant owners reported an average 36% loss in revenue last year, with many expressing concerns about the future.
Last month, US President Joe Biden signed the third COVID-19 stimulus package to help the industries hit hardest by the pandemic. Under the plan, $28.6 billion have been reserved to help restaurants, food trucks, bars, and street vendors in paying their back rent, mortgages, and assist with other financial problems. This package is also expected to help small restaurant owners who have been at the mercy of large, well-capitalized food giants looking to aggressively expand by taking advantage of the recession.
The pandemic has also forced a fundamental rethink of the traditional business model for restaurants. The establishments that had takeaway and delivery options streamlined before the pandemic have seen their business surge, whereas those that relied on dine-in sales have suffered major losses. The food delivery market is expected to grow to more than $200 billion by the middle of this decade. In countries other than the US, this business is growing too. In China, food delivery applications can now reach more than 650 million people across the country.
As the economy reopens and people head back to their normal routines, the restaurant business is expected to thrive. The industry has plenty of room to maneuver through another crisis with many restaurants learning from the pandemic and offering dine-in services complemented by delivery options. However, it is prudent to stay ahead of the market trends, especially after a major crisis. Cheap restaurant stocks with growth potential might be the better option for investors looking for higher gains.
The digital revolution in the restaurant business over the past few months is reminiscent of the changes taking place in other sectors over the past few years. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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Let’s start our list of the top 10 restaurant stocks under $10.
Top 10 Restaurant Stocks Under $10
10. Drive Shack Inc. (NYSE: DS)
Price as of April 20, 2021: $2.93 per share
Drive Shack Inc. (NYSE: DS) is a Dallas-based company that owns and runs several golf-related entertainment centers in the US. The firm operates in Raleigh, North Carolina; Richmond, Virginia, Orlando and Florida. The entertainment centers offer several services, including a chef-inspired menu and craft cocktails. The company has at least sixty properties under its control in nine states and was founded in 2002 under the name Newcastle Investment Corp. It is placed tenth on our list of top 10 restaurant stocks under $10.
It has a market cap of over $272 million and posted more than $219 million in annual revenue in December 2020, down from $272 million in the previous year. Last month, the share price of the firm surged after financial services firm Craig-Hallum Capital started coverage on Drive Shack with a Buy rating. The company was assigned a price target of $5. The 52-week price range of Drive Shack stock lies between $3.9 and $1. Last month, it reported $0.13 earning per share for the fourth quarter of 2020, in line with earlier projections.
9. FAT Brands Inc. (NASDAQ: FAT)
Price as of April 20, 2021: $8.16 per share
FAT Brands Inc. (NASDAQ: FAT) is a California-based restaurant franchising company involved in the development, marketing, and acquisition of restaurants worldwide. It operates many famous brands, including Fatburger, Buffalo’s Cafe, Johnny Rockets, Hurricane Grill & Wings, Elevation Burger, Yalla Mediterranean, Buffalo’s Express, and the Ponderosa & Bonanza Steakhouse. The firm operates more than 700 units globally. FAT Brands was incorporated in 2017 and is placed ninth on our list of top 10 restaurant stocks under $10.
Last month, FAT Brands announced that it had signed an agreement with media solution provider Stingray Business and digital media collective Space Factory Media for custom music, insights, and systems solutions. As part of the deal, the music firms would offer custom music and artificial intelligence-powered insights at Fatburger and Johnny Rockets.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm ADW Capital held the most shares in the company – 739,323 – worth more than $4.3 million.
8. J. Alexander’s Holdings, Inc. (NYSE: JAX)
Price as of April 20, 2021: $9.97 per share
Alexander’s Holdings, Inc. is a Nashville-based restaurant company that owns and operates several eateries in the United States. The restaurants it runs include J. Alexander’s, Redlands Grill, Lyndhurst Grill, Overland Park Grill, Merus Grill, and Stoney River Steakhouse and Grill. The restaurants run by the firm mostly offer American food only. The firm operates more than 40 such establishments. J. Alexander’s Holdings was founded in 1970 and is placed eighth on our list of top 10 restaurant stocks under $10.
In April 2020, the US government provided J. Alexander’s with more than $15 million as part of a program to assist small US-based businesses during the COVID-19 pandemic. However, after backlash on the media about large firms being bailed out by the government, the company returned all of the money it had received.
At the end of the fourth quarter of 2020, 10 hedge funds in the database of Insider Monkey held stakes worth $19 million in the firm, the same as in the preceding quarter worth $13 million.
7. The ONE Group Hospitality, Inc. (NASDAQ: STKS)
Price as of April 20, 2021: $8.27 per share
The ONE Group Hospitality, Inc. (NASDAQ: STKS) is a Denver-based hospitality company that owns and runs restaurants and lounges and provides management services for hotels, casinos and other posh venues. The primary brand of the company is the STK restaurant, a modern eatery that aims to recreate the traditional American steakhouse concept. The STK and Kona Grill, another chain owned by the firm, operate in more than 54 locations. The company was founded in 2004 and is placed seventh on the top 10 restaurant stocks under $10.
The company has a market cap of more than $260 million and posted more than $141 million in annual revenue in December 2020, up from $120 million in the previous year. The 52-week price range of ONE Group stock is $10.9-$1.2. Last month, the company reported earnings for the last three months of 2020, revealing that that fourth quarter consolidated sales had decreased by 14.8%, compared to a 4.2% increase in October, a 18.4% decrease in November, and a 26.4% decrease in December.
6. Carrols Restaurant Group, Inc. (NASDAQ: TAST)
Price as of April 20, 2021: $5.58 per share
Carrols Restaurant Group, Inc. (NASDAQ: TAST) is a New York-based firm that is most famous for owning the Burger King franchise. The company runs more than 1,000 Burger King restaurants, as well as more than 50 Popeye restaurants, in 23 US states. The company was founded in 1960 and started running the Burger King franchise in 1976. It is placed sixth on our list of top 10 restaurant stocks under $10.
Late last year, Carrols Restaurant stock surged more than 8% after the company’s director, Matthew Perelman, bought an additional 56,300 shares in the group at an average price of $5.25 per share. This increased his ownership in the firm to 106,324 shares. In February this year, the group appointed industry veteran Carl Hauch as the new Chief Operating Officer. Hauch had served as the President and CEO of NPC international previously.
5. Arcos Dorados Holdings Inc. (NYSE: ARCO)
Price as of April 20, 2021: $5.40 per share
Arcos Dorados Holdings Inc. (NYSE: ARCO) is a Uruguay-based firm that owns the master franchise of the fast food restaurant chain McDonald’s in 20 countries in Latin America and the Caribbean. The franchise owned by the firm is the largest in the world in terms of system-wide sales and the number of restaurants. It has operations in Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curacao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, and Uruguay.
The company runs more than 2,200 restaurants across these countries and was founded in 2007. It is placed fifth on our list of top 10 restaurant stocks under $10.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Moerus Capital Management held the most shares in the company – 6.06 million – worth more than $30.4 million. Millennium Management was second on the list with 1.6 million shares worth $8.1million.
4. Potbelly Corporation (NASDAQ: PBPB)
Price as of April 20, 2021: $5.94 per share
Potbelly Corporation (NASDAQ: PBPB) is a Chicago-based company that runs Potbelly sandwich shops in the United States. The items on the menu of the company restaurants include sandwiches, salads, soups, chili, sides, desserts, breakfast sandwiches, and steel cut oatmeal. The firm runs more than 400 shops and 46 franchise stores across the US. It was founded in 1977 and is placed fourth on the list of top 10 restaurant stocks under $10.
The firm has a market cap of more than $172 million and posted an annual revenue of more than $291 million in December 2020, down from $409 million in the previous year. Potbelly is expected to make a strong comeback as the vaccine rollout in the country allows for the reopening of restaurants.
At the end of the fourth quarter of 2020, 6 hedge funds in the database of Insider Monkey held stakes worth $25.7 million in the firm, down from 7 in the preceding quarter worth $20.3 million.
3. Luby’s, Inc. (NYSE: LUB)
Price as of April 20, 2021: $3.50 per share
Luby’s, Inc. is a Texas-based firm that offers restaurant services in the United States. It has six famous brands: Luby’s Cafeterias, Fuddruckers, World’s Greatest Hamburgers, Koo Koo Roo, Cheeseburger in Paradise, and Culinary Contract Services. The company runs more than 84 restaurants across 26 locations in the country. These include more than 20 Fuddruckers restaurants. The firm was founded in 1947 as Luby’s Cafeterias but later changed its name. It is placed third on our list of top 10 restaurant stocks under $10.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Bandera Partners held the most shares in the company – 2.8 million – worth more than $8.1 million. Renaissance Technologies was second on the list with 0.4 million shares worth $1.1 million. In January, the company appointed John Garilli as Interim President and Chief Executive Officer after Christopher Pappas stepped down.
2. Noodles & Company (NASDAQ: NDLS)
Price as of April 20, 2021: $9.60 per share
Noodles & Company is a Denver-based fast-casual restaurant that offers international and American noodle dishes and pasta, as well as soups and salads. It was founded in 1995 and is placed second on our list of top 10 restaurant stocks under $10. The company operates more than 350 company-owned and more than 70 franchised restaurants in 29 US states. Earlier this month, investment bank Jefferies rated Noodles stock a Buy on the back of positive trends for dine-in restaurants as the economy reopened.
In March, the stock of the firm had jumped to a 52-week high after investment bank Piper Sandler upgraded the rating of the firm to Overweight from Neutral. Piper Sandler affirmed that there was an opportunity for the stock to grow 30% based on its expansion plans.
At the end of the fourth quarter of 2020, 22 hedge funds in the database of Insider Monkey held stakes worth $120 million in the firm, up from 19 in the preceding quarter worth $67 million.
1. Good Times Restaurants Inc. (NASDAQ: GTIM)
Price as of April 20, 2021: $4.51 per share
Good Times Restaurants Inc. (NASDAQ: GTIM) is a Colorado-based fast food chain that focuses on offering premium burgers and frozen custard. It also owns Bad Daddy’s Burger Bar, a full-service casual dining restaurant. It runs 37 Bad Daddy’s Burger Bar restaurants; and 25 Good Times Burgers & Frozen Custard restaurants. The company was founded in 1987 and is placed first on our list of top 10 restaurant stocks under $10.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Renaissance Technologies held the most shares in the company – 534,778 – worth more than $1.5 million. Manatuck Hill Partners was second on the list with 25,300 shares worth $72,000.
Earlier this month, the company reported 22.9% year-on-year growth for quarter two in same store sales for its Good Times Burgers & Frozen Custard brand. Bad Daddy’s Burger Bar sales increased 9.1% during the time period.
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This article is originally published at Insider Monkey.
