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12 Best Restaurant Stocks to Invest In

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·18 min read
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In this article we will take a look at the 12 best restaurant stocks to invest in. You can skip our detailed analysis of the restaurant industry’s outlook for 2021 and go directly to the 5 Best Restaurant Stocks to Invest In.

The restaurant industry got clobbered after the coronavirus crisis, resulting in billions of dollars in losses and hundreds of thousands of layoffs. According to a report published by The National Restaurant Association, the restaurant industry’s total sales stood restaurant and foodservice industry sales declined by $240 billion in 2020 from an expected level of $899 billion. Moreover, approximately 110,000 restaurants in the U.S. were closed either temporarily or permanently.

However, the industry is slowly getting back on its feet, and analysts believe that now might be the right time to pile into restaurant stocks to profit from the incoming recovery. In March, U.S. President signed the third Covid-19 stimulus package, allocating $28.6 billion for the restaurant and food industry. The package is also for street vendors and small restaurant owners hard hit by the pandemic. Also, many restaurants started to make a shift towards the new normal, employing ways to attract customers even during the hardest of times. This included the emphasis on drive-thrus, contactless deliveries, digital ordering, and takeaways.

Restaurants that were quick to shift to digital sales, drive-thru operations, and pick-up orders fared well in the pandemic as compared to traditional restaurant companies which didn't adapt these methods. Drive-thru sales at Starbucks Corporation (NASDAQ: SBUX) accounted for 50% of the gross sales in Q1. This gives us an idea that the convenience of drive-thrus and pick-up deliveries is embraced by the audience as well as by the investors. The shares of Brinker International, Inc. (NYSE: EAT) are up 180.9% over the past year and Starbucks Corporation (NASDAQ: SBUX) also soared by over 64% during the same time.

Other than drive-thrus, restaurants with growth in digital sales also remained the top picks of investors. According to a report by Research and Markets, the global online food delivery market is growing at a CAGR of 10% and is expected to reach $126.9 billion in 2021 from $115 billion in 2020. The digital sales grew by 124% in the year ended in March. The numbers are substantiated by the revenues generated by some of the major restaurants, such as McDonald’s Corporation (NYSE: MCD), Domino’s Pizza, Inc. (NYSE: DPZ), Chipotle Mexican Grill, Inc. (NYSE: CMG), etc. These restaurant stocks have also surged in the past year and have real upside potential due to growing digital sales, according to analysts.

In the first quarter, the online sales of McDonald’s Corporation (NYSE: MCD) accounted for nearly $1.5 billion of the gross revenue. Similarly, the digital sales of Chipotle Mexican Grill, Inc. (NYSE: CMG) grew by 133.9% year-over-year to $869.8 million in the first quarter. This presents an outlook of the post-pandemic world where approximately 70% of consumers prefer to order digitally for off-premises delivery, according to a report by Deloitte. One of the most famous pizza restaurant chains, Domino’s Pizza, Inc. (NYSE: DPZ), also reported a 75% growth in its online orders.

China remained the largest market in the food delivery segment, followed by the U.S. The food delivery apps in China presented a growing customer base and currently reach over 650 million people. In the U.S., the food delivery apps generated a revenue of $26.5 billion in 2020, up from $22 billion in 2019.

The Wall Street analysts are also expecting a boom in the restaurant business in the coming months. An investment management firm, AdvisorShares, launched a new restaurant ETF in April. The top holdings of the fund include McDonald’s Corporation (NYSE: MCD), Darden Restaurants, Inc. (NYSE: DRI), Starbucks Corporation (NASDAQ: SBUX), Jack in the Box Inc. (NASDAQ: JACK), Papa John's International, Inc. (NASDAQ: PZZA), Yum! Brands, Inc. (NYSE: YUM), etc.

Best Restaurant Stocks to Invest In
Best Restaurant Stocks to Invest In

Photo by S O C I A L . C U T on Unsplash

With this context in mind, let’s analyze the list of the 12 best restaurant stocks to invest in. We took into account hedge fund sentiment, analysts’ ratings, long-term growth potential, and fundamentals while choosing these stocks.

12 Best Restaurant Stocks to Invest In

12. The Cheesecake Factory Incorporated (NASDAQ: CAKE)

Number of Hedge Fund Holders: 18

The Cheesecake Factory Incorporated (NASDAQ: CAKE) is an American restaurant company as well as distributor of cheesecakes. The company was founded in 1972 and is headquartered in California, U.S. Today, there are over 200 Cheesecake Factory restaurants located worldwide. CAKE ranks twelfth on our list of the best restaurant stocks to invest in.

In Q1 2021, The Cheesecake Factory Incorporated (NASDAQ: CAKE) reported a net income of $10.8 million, up from $5.8 million during the same period last year. The EPS stood at $0.20, beating the market consensus by $0.26. The revenue also grew to $627 million, from $615 million in the prior year quarter. The company also saw year-over-year growth of 2.8% in comparable sales. Moreover, it also generated $21.6 million in cash flow through operating activities.

The company paid $5.1 million to shareholders as dividends in the first quarter. After hitting a low in March 2020, the CAKE stock has soared by over 158% in the past year and 50.2% year to date. In July, Raymond James raised its price target on CAKE to $60, with an ‘Outperform’ rating. The CAKE stock was added to Wedbush’s ‘best ideas list’ in June, with an ‘Outperform’ rating and a $70 price target.

As of Q1 2021, 18 hedge funds have positions in The Cheesecake Factory Incorporated (NASDAQ: CAKE), worth $172 million. Candlestick Capital Management is the leading shareholder of the company with shares worth $51.2 million.

Like Brinker International, Inc. (NYSE: EAT), Chipotle Mexican Grill, Inc. (NYSE: CMG), Starbucks Corporation (NASDAQ: SBUX), Darden Restaurants, Inc. (NYSE: DRI), and McDonald’s Corporation (NYSE: MCD), The Cheesecake Factory Incorporated (NASDAQ: CAKE) is one the best restaurant stocks to invest in.

Barron Funds, an investment management firm, released its Q1 2021 investor letter and mentioned The Cheesecake Factory Incorporated (NASDAQ: CAKE) in it. Here is what the firm has to say:

“Shares of The Cheesecake Factory, Inc., the operator of casual dining restaurants, were up significantly in the first quarter, as their dining rooms reopened, and business recovered from the depths caused by COVID restrictions. We believe that the company weathered the downturn very well and emerged a stronger, more profitable entity, with an improved outlook. Off Premise sales were robust during the shutdown, and we believe that a good portion of those sales will be retained, so that each restaurant will do more revenue than before. We expect about 15% of restaurants in the casual dining space will be shuttered forever, which will help Cheesecake’s volumes and already strong competitive position. And we are excited about the opportunity for it to grow units, especially in the North Italia and Fox brands, which the company acquired prior to COVID. However, with the stock quadrupling off the bottom and back to its highs of five years ago, and trading at a good multiple of our expectation of near-term earnings, we sold about a third of our position into strength.”

11. Texas Roadhouse, Inc. (NASDAQ: TXRH)

Number of Hedge Fund Holders: 22

Texas Roadhouse, Inc. (NASDAQ: TXRH) is an American steakhouse chain that specializes in steaks. The company operates casual dining restaurants in the U.S. and internationally. As of 2021, it has restaurants in over 611 locations in the U.S. and 28 located worldwide. TXRH ranks eleventh on our list of the best restaurant stocks to invest in.

In Q1 2021, Texas Roadhouse, Inc. (NASDAQ: TXRH) reported a net income of $64.1 million, up from $16 million during the same period last year, presenting a 300% year-over-year growth. The EPS, recorded at $0.91, also grew by 298.5% from the previous year and beat the market consensus by $0.33. The consolidated revenue saw a 22.7% year-over-year growth at $800.6 million. Comparable restaurant sales also grew by 18.5% in the first quarter. The board declared a quarterly dividend of $0.40 per common share. The TXRH stock soared by 94% in the past year and 30.9% year to date. Due to the solid earnings in the first quarter, many investment banks raised their price targets on the TXRH stock, such as Barclays and Deutsche Bank. Truist also raised its price target on TXRH to $127 and maintained a 'Buy' rating on the shares.

At the end of Q1 2021, 22 hedge funds tracked by Insider Monkey have positions in Texas Roadhouse, Inc. (NASDAQ: TXRH), worth $383.3 million. With 2.6 million shares, worth $255.7 million, Melvin Capital Management is the leading shareholder of the company.

Like Chipotle Mexican Grill, Inc. (NYSE: CMG), Brinker International, Inc. (NYSE: EAT), Starbucks Corporation (NASDAQ: SBUX), Darden Restaurants, Inc. (NYSE: DRI), and McDonald’s Corporation (NYSE: MCD), Texas Roadhouse, Inc. (NASDAQ: TXRH) is one the best restaurant stocks to invest in.

10. Restaurant Brands International Inc. (NYSE: QSR)

Number of Hedge Fund Holders: 26

Restaurant Brands International Inc. (NYSE: QSR) is a fast-food holding company based in Canada. The company owns three of the most famous fast-food chains, such as Tim Hortons, Burger King, and Popeyes. As of 2021, it has more than 27,000 restaurants located in over 100 countries. QSR ranks tenth on our list of the best restaurant stocks to invest in.

In Q1 2021, Restaurant Brands International Inc. (NYSE: QSR) reported a net income of $257 million, up from $227 million during the same period last year. The EPS for the quarter stood at $0.55, beating the market consensus by $0.05. The company generated $1.26 billion in revenues, beating the estimate by $10 million. Of all the three subsidiaries, Tim Hortons generated the most revenue of $710 million, whereas Burger King generated $407 million. The digital sales also grew at Tim Hortons by 31%, driven by 2 million app downloads in March. The board has declared a quarterly dividend of $0.53 per share. The QSR stock reached its all-time low of $32 in March 2020 due to the global market crash. However, QSR has delivered a return of 14.9% in the past year, showing signs of recovery. In June, Barclays raised its price target on QSR to $77, with an ‘Overweight’ rating on the shares.

At the end of Q1 2021, 26 hedge funds tracked by Insider Monkey have positions in Restaurant Brands International Inc. (NYSE: QSR), worth $2.2 billion. Pershing Square is the largest shareholder of the company with 23.9 million shares, worth $1.55 billion.

Like McDonald’s Corporation (NYSE: MCD), Chipotle Mexican Grill, Inc. (NYSE: CMG), Brinker International, Inc. (NYSE: EAT), Starbucks Corporation (NASDAQ: SBUX), Darden Restaurants, Inc. (NYSE: DRI), and Texas Roadhouse, Inc. (NASDAQ: TXRH), Restaurant Brands International Inc. (NYSE: QSR) is one the best restaurant stocks to invest in.

Pershing Square Holdings Ltd. released its Q4 2020 investor letter and mentioned Restaurant Brands International Inc. (NYSE: QSR) and other stocks in it. Here is what the firm has to say:

“QSR’s franchised business model is a high-quality, capital-light, growing annuity that generates high-margin brand royalty fees from three leading brands: Burger King, Tim Hortons and Popeyes. The company nimbly navigated difficult market conditions in 2020 by assisting franchisees, while maintaining its long-term growth potential.

As the COVID-19 pandemic began, management undertook a series of steps to secure and strengthen the business. The company quickly bolstered safety procedures and shifted marketing spend to highlight the off -premise options available to customers, while supporting its franchisees with fee/cap ex deferrals and liquidity programs. Throughout the year, the company accelerated its digital investments by expanding its delivery footprint, modernizing its drive-thru experience, increasing mobile ordering adoption, and improving its loyalty programs..." (Click here to view the full text)

9. Domino’s Pizza, Inc. (NYSE: DPZ)

Number of Hedge Fund Holders: 29

Domino’s Pizza, Inc. (NYSE: DPZ) is an American pizza restaurant chain with headquarters in Michigan, U.S. DPZ stands ninth on our list of the best restaurant stocks to invest in. It is one of the most famous pizza chains in the world, selling over 3 million pizzas a day globally. The company has more than 17,800 restaurants in over 90 countries.

In Q1 2021, Domino’s Pizza, Inc. (NYSE: DPZ) reported a net income of $117.8 million and an EPS of $3.00, beating the market consensus by $0.06. The consolidated revenue stood at $983.6 million, presenting a 12.7% year-over-year growth. Global retail sales grew by 13.4% in the first quarter and international same-store sales also showed a growth of 11.8%. The board also declared a quarterly dividend of $0.94 per share. The company attributed the solid quarter to the U.S. and global same-store sales growth. Since the beginning of the year, the DPZ stock has delivered a 28.6% return. Recently, RBC Capital’s analyst Christopher Carril raised the bank’s price target on DPZ to $515, rating it as ‘Outperform’. In July, Wells Fargo also raised its price target to $446 on the DPZ stock.

As of Q1 2021, 29 hedge funds tracked by Insider Monkey have positions in Domino’s Pizza, Inc. (NYSE: DPZ), worth $2.17 billion. With 2.03 million shares, worth $748 million, Pershing Square is the company’s largest shareholder.

Like Darden Restaurants, Inc. (NYSE: DRI), McDonald’s Corporation (NYSE: MCD), Chipotle Mexican Grill, Inc. (NYSE: CMG), Brinker International, Inc. (NYSE: EAT), Starbucks Corporation (NASDAQ: SBUX), and Texas Roadhouse, Inc. (NASDAQ: TXRH), Domino’s Pizza, Inc. (NYSE: DPZ) is one the best restaurant stocks to invest in.

Stewart Asset Management LLC recently released its second-quarter 2021 investor letter and mentioned Domino’s Pizza, Inc. (NYSE: DPZ) in it. Here is what the firm has to say:

“We should point out, however, that some of our holdings do have exposure to higher costs. Domino’s Pizza is a clear example. It is exposed to both the volatile cost of milk and higher employment costs for both its store employees and those employed in its delivery system. In response to higher costs, the company has begun charging more for its industry-leading delivery service. Despite this, its volumes continue to grow at double-digit rates. Moreover, Domino’s has not raised food prices in the face of rising input costs, yet has managed to increase its operating margin.”

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

Number of Hedge Fund Holders: 30

Jack in the Box Inc. (NASDAQ: JACK) is an American fast-food restaurant chain with headquarters in California, U.S. It is one of the most famous quick-service restaurants in the U.S. and Guam, serving over 500 million customers annually. The company was founded in 1951 and now operated over 2,200 restaurants. JACK ranks eighth on our list of the best restaurant stocks to invest in.

In Q2 2021, Jack in the Box Inc. (NASDAQ: JACK) generated over $257.2 million in revenue, up 19% from $216.2 million during the same period last year. Global same-store sales and company same-store sales also grew by 20.6% and 14.5%, respectively. The EPS beat the market estimate by $0.19 at $1.48. In the second quarter, the company also repurchased shares of its common stock worth $65.0 million. The board increased a quarterly dividend by 10% to $0.44 per share.

By 2025, the company sees a 4% unit growth. After hitting an all-time low in March 2020, the JACK stock’s performance has been consistent, soaring by 51.1% in the past year. In June, RBC Capital initiated its coverage on JACK with an ‘Outperform’ rating and the price target of $140.

At the end of Q1 2021, 30 hedge funds tracked by Insider Monkey have stakes in Jack in the Box Inc. (NASDAQ: JACK), worth $302.8 million. With shares worth $60.3 million, Scopus Asset Management is the largest shareholder of the company.

Like Starbucks Corporation (NASDAQ: SBUX), Darden Restaurants, Inc. (NYSE: DRI), McDonald’s Corporation (NYSE: MCD), Chipotle Mexican Grill, Inc. (NYSE: CMG), Brinker International, Inc. (NYSE: EAT), and Domino’s Pizza, Inc. (NYSE: DPZ), Jack in the Box Inc. (NASDAQ: JACK) is one the best restaurant stocks to invest in.

7. Papa John's International, Inc. (NASDAQ: PZZA)

Number of Hedge Fund Holders: 32

Papa John's International, Inc. (NASDAQ: PZZA) is an American pizza restaurant chain. The company was founded in 1984 and has headquarters in Jeffersonville, Indiana. It has over 5,000 restaurants, located in 50 countries. Recently, the company has announced its plans to open over 250 restaurants in Germany by 2028, in partnership with PJ Western Group. In 2020, Papa John's International, Inc. (NASDAQ: PZZA) added 11 million customers to its digital channels. PZZA ranks seventh on our list of the best restaurant stocks to invest in.

In Q1 2021, Papa John's International, Inc. (NASDAQ: PZZA) reported a net income of $29.6 million, up from $4.9 million during the same period last year. The EPS stood at $0.90, beating the market consensus by $0.34. The company saw a 24.7% year-over-year growth in revenue at $511.7 million, with domestic company-owned restaurants accounting for $197.2 million. International restaurants generated over $34.6 million, compared with $26 million in the prior-year quarter.

The comparable sales also grew by 26.2% in North America and 23.2% internationally, fueled by menu innovation and a growing customer base. Since the beginning of the year, the PZZA stock has delivered a 29.01% return. Recently, PZZA's price target has also been raised by many investment banks, including KeyBanc, Stifel, Deutsche Bank, etc. In June, Credit Suisse also rated PZZA as ‘Outperform’.

As of Q1 2021, 32 hedge funds tracked by Insider Monkey have positions in Papa John's International, Inc. (NASDAQ: PZZA), worth $355.8 million. With over 1 million shares, worth $90.9 million, Citadel Investment Group is the leading shareholder of the company.

Like Starbucks Corporation (NASDAQ: SBUX), Darden Restaurants, Inc. (NYSE: DRI), McDonald’s Corporation (NYSE: MCD), Chipotle Mexican Grill, Inc. (NYSE: CMG), Brinker International, Inc. (NYSE: EAT), and Domino’s Pizza, Inc. (NYSE: DPZ), Papa John's International, Inc. (NASDAQ: PZZA) is one the best restaurant stocks to invest in.

6. Yum! Brands, Inc. (NYSE: YUM)

Number of Hedge Fund Holders: 32

Yum! Brands, Inc. (NYSE: YUM) is an American fast-food corporation with headquarters in Kentucky, United States. The company owns some of the most famous fast-food chains, such as KFC, Pizza Hut, Taco Bell. As of 2021, it operated over 50,000 restaurants in more than 150 countries. The company spun off its China business as an independent company in 2016. In the first quarter, YUM opened 435 new restaurants globally.

In Q1 2021, Yum! Brands, Inc. (NYSE: YUM) reported a net income of $326 million, up from 83 million during the same period last year. The EPS beat the market consensus by $0.20 at $1.07. The company’s revenue also saw an 18.4% year-over-year growth at $1.49 billion.

Worldwide system sales grew by 11% in the first quarter. KFC’s sales topped the list of all the three subsidiaries, generating $625 million with an 11% growth in system sales. The digital systemwide sales stood at $5 billion in the first quarter, presenting a 45% year-over-year growth. The YUM stock has delivered a 34.8% return in the past year. Due to the strong earnings, many investment banks raised the price targets on the YUM stock, like Barclays, Credit Suisse, and BMO Capital. Oppenheimer also raised its price target on YUM to $135, with an 'Outperform' rating on the shares.

Of the 866 hedge funds tracked by Insider Monkey, 32 funds have stakes in Yum! Brands, Inc. (NYSE: YUM), worth $751 million. Alkeon Capital Management is the leading shareholder of the company with 2.3 million shares, worth over $250 million.

Like Starbucks Corporation (NASDAQ: SBUX), Darden Restaurants, Inc. (NYSE: DRI), McDonald’s Corporation (NYSE: MCD), Chipotle Mexican Grill, Inc. (NYSE: CMG), Brinker International, Inc. (NYSE: EAT), and Domino’s Pizza, Inc. (NYSE: DPZ), Yum! Brands, Inc. (NYSE: YUM) is one the best restaurant stocks to invest in.

Click to continue reading and see the 5 Best Restaurant Stocks to Invest In.

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Disclosure. None. 12 Best Restaurant Stocks to Invest In was originally published on Insider Monkey.