We recently published a list of Top 10 Restaurant Stocks to Buy Under $20. In this article, we are going to take a look at where El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) stands against other top restaurant stocks to buy under $20.
The Impact of Trump’s Tariffs on the Restaurant Industry
Restaurant stocks are showing volatility amid Trump’s tariff impositions across various sectors. On April 7, CNBC reported that while US stocks are tumbling due to the effects of high tariffs on the import of goods from key trading partners, analysts do not anticipate the tariffs to hit most restaurant stocks directly. However, inflation is expected to follow behind, fueled by expert and investor fear of an impending recession. This may put pressure on the spending capacity of consumers, resulting in an economic downturn.
CNBC reported that UBS analyst Dennis Geiger said the following in a note to clients:
“We view the direct cost impact of tariffs on restaurants as manageable, with a focus on select commodity costs, but see the bigger risk as incremental pressure on consumer spending and industry demand.”
CNBC also reported that investor concerns affected restaurant stocks across all sectors. Fast food restaurant chains have historically shown the most resilience during recessions, as consumers looking for cheap dining options typically level down from fast-casual or full-service diners and eateries to fast food options. However, the drop in consumer spending witnessed last year saw fast food restaurants hit hard, as low-income consumers cut their spending to this sector, visiting them less frequently. High-income consumers, on the other hand, continued with their usual dining habits, creating a gap that negatively affected fast food companies. Quick-service restaurants thus underwent same-store sales declines.
How Are High-Income Consumers Behaving?
On March 8, Mario Carbone, Major Food Group chef and co-founder, appeared on CNBC’s ‘Power Lunch’ to discuss the effects of Trump’s tariffs on the food industry and how high-end consumers are behaving in the sector. Talking about New York, he said that the numbers are booming, going above their pre-Covid benchmarks. New York is thus telling us that everything is good, and there is no fear right now in dining in the luxury sector. Stats are up, and restaurants are packed, with consumer energy through the roof. As of right now, there are no signs of slowing at all if one evaluates the spending and trends in restaurant reports.
However, Carbone said that inflation hits the food and restaurant industry just like everyone else. The luxury food sector is responsible to the customer for bringing in the best ingredients for every meal, which is why it has no choice but to pass the effects on to the consumer in case such trends materialize.
Our Methodology
We sifted through stock screeners, financial media reports, and ETFs to compile a list of 20 restaurant stocks under $20 as of April 13, 2025, and chose the top 10 most popular among hedge funds as of Q4 2024. The list is ordered in ascending order of hedge fund sentiment. We sourced the hedge fund sentiment data from Insider Monkey’s database.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A worker preparing freshly-baked food in the back of a restaurant at a franchise location.
El Pollo Loco Holdings, Inc. (NASDAQ:LOCO)
Share Price: $9.55
Number of Hedge Fund Holders: 18
El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) develops, franchises, and licenses quick-service restaurants under the name El Pollo Loco. It specializes in fire-grilling fresh chicken and offers various popular food options, such as Pollo Bowls, Pollo Fit entrees, and more.
In a report released on April 8, Jeremy Hamblin from Craig-Hallum maintained a Buy rating on El Pollo Loco Holdings, Inc. (NASDAQ:LOCO). Craig-Hallum analyst Jeremy Hamblin also initiated company coverage on March 11 and set a Buy rating with an $18 price target. The analyst said that the company’s new management team holds extensive QSR experience and is thus revitalizing the brand, driving record AUVs and around 200 bps of margin expansion in fiscal year 2024.
El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) also holds a unique position in the fast-growing chicken sector, and menu innovation in 2025 is expected to be a key driver of growth for the company, according to the firm. The firm sees further rest-level margin expansion to 18% based on food cost and labor initiatives. The lapping of the FAST Act in California will limit future wage pressure. The firm also cited the underpenetrated digital channel as a significant opportunity to drive margin and sales.
Overall, LOCO ranks 7th on our list of the top restaurant stocks to buy under $20. While we acknowledge the potential for LOCO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than LOCO but trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.