April’s CPI print casts a dark shadow over restaurant stocks to buy. Dining-out costs continue to outweigh those of eating at home by a sizable margin. Hence, restaurant stocks are likely to be impacted by a more cautious consumer amidst a worsening economic outlook. Keeping that in mind, investors should separate the wheat from the chaff, investing in the best restaurant stocks to buy.
The growing disparity between the inflation rates for food at home and food away from home will significantly impact consumer behavior. Consequently, you’re likely to see a lot of pressure being exerted on company bottom-lines in the future. Therefore, companies must be more dynamic in their strategies to maintain profitability effectively. Hence, it’s wise to bet on the most resilient restaurant stocks in this tricky current economic scenario, which can weather the challenges.
Restaurant Stocks to Buy: Shake Shack (SHAK)
Shake Shack (NYSE:SHAK) is one of the largest fast-casual restaurant chains globally, with more than 403 outlets in the U.S., Europe, and Asia. Over the past couple of decades, the firm has maintained an impressive record of top-and-bottom-line growth through effective decision-making.
Moreover, with a multi-faceted strategy involving geographical expansion and same-store sales expansion, Shake Shack’s operational performance has been off the charts. Additionally, it continues to expand to new locations, benefitting from economies of scale.
Though it’s currently navigating some tough headwinds like its peers, its top-and-bottom-line metrics are in line with its historical averages. In each of the four quarters last year, it posted double-digit growth in sales, along with a sizable improvement in net profits. In fact, it flipped the script last year, posting a $20.3 million net profit compared to a considerable $21.2 million net loss in 2022. Moreover, it kept up the momentum in the first quarter (Q1), reporting a 12.3% increase in year-over-year (YOY) sales to $443.4 million.
Chipotle (CMG)
Chipotle (NYSE:CMG) is another bellwether in the fast-food industry, which continues to stand out from its competition for its strong customer loyalty. Despite the rising costs and resultant price increases over the years, its customers continue to flock to Chipotle locations.
Its tremendous brand equity can be gauged from the consistency of its financial performance. Its 5-year average revenue and EBITDA growth stand at an eye-catching 15% and 32%, respectively. Recent results are in line with its lofty historical averages, bolstering its free cash flows to just under the $1 billion mark on a trailing-twelve-month (TTM) basis.
Its Q1 results showed an impressive 14.1% increase in sales YOY and a 23.9% increase in diluted EPS. Moreover, it opened 47 new restaurants during the quarter, with its management setting a long-term target of more than doubling its business in North America and expanding internationally.
CMG stock has a hefty price tag—enough to justify splurging on a luxurious weekend getaway instead of buying it. However, sustained investor interest in the stock indicates a healthy growth runway ahead.
Domino’s Pizza (DPZ)
Domino’s Pizza (NYSE:DPZ) is one of the most beloved pizza chains globally, and it has been an incredibly rewarding investment over the years. Had you invested $50,000 in DPZ stock ten years ago, you will have compounded that investment to $359,000. That doesn’t include the impact of its robust dividend, which it’s been growing over the past decade.
Its monstrous success is linked to its rapid sales growth over the years, underpinned by its strategy of saturating a market with its stores. This strategy has paid many dividends, which it continues to reap despite the market headwinds.
It recently released another solid earnings report, beating analyst estimates across both lines with a hefty margin. Q1 sales of $1.08 billion grew 6% on a YOY basis, while its EPS of $3.58 surged by 22.2%. Quarterly net income jumped by 20% YoY to $126 million, while same-store sales in the U.S. grew 5.6%, fueled by delivery orders.
Looking ahead, there’s plenty of reason to believe the fast-food giant will continue growing at a rapid clip. Its effective pricing strategies and diverse menu offerings will continue driving top-line expansion as it plans to open 1,100 more stores by 2028, with even larger gains ahead.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
