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The 5 Best Restaurant Stocks of 2018 (So Far)

Demitrios Kalogeropoulos, The Motley Fool

This year hasn't been great for the broader restaurant industry. Leading companies, including Starbucks and McDonald's, have been struggling with negative customer traffic trends as more diners opt to stay closer to home, or to have their food delivered.

A few restaurant chains have managed to buck that downtrend, though, and their business success has contributed to market-beating stock-price gains for shareholders.

Below, we'll take a closer look at a few of these outperforming chains.

A couple eating breakfast out.

Image source: Getty Images.

Domino's Pizza: Up 48%

Investors had been worried that Domino's (NYSE: DPZ) impressive growth streak was coming to an end, but the pizza chain put those fears to rest in its fiscal first-quarter earnings report. That announcement revealed that sales gains sped up to an 8% pace from 4% in the prior quarter thanks to market share gains in both the U.S. and international segments. Domino's franchised business model, meanwhile, continued to show off its strength as operating margin jumped to 38% of sales from 31%. The company is hoping to continue expanding sales at existing locations at a healthy clip, but its long-term growth plans center on building out its store base to an even deeper penetration in the U.S. and in other countries around the world.   

Fiesta Restaurant Group: Up 53%

Fiesta Restaurant Group (NASDAQ: FRGI), home of the Pollo Tropical and Taco Cabana fast-casual chains, is back in Wall Street's good graces after a tough 2017 that was marked by falling sales at existing locations and an overall net loss. Its rebound plan, which includes cost cuts, menu improvements, and increased marketing investments, appears to be working. Sales returned to modest growth in the Pollo Tropical segment and are looking better at Taco Cabana. Those gains represent just the first small step in bringing the business back toward the nearly 10% operating margin shareholders saw in 2015, up from roughly 3% today. 

Chipotle Mexican Grill: Up 55%

Former highflier Chipotle (NYSE: CMG) has had an impressive rally this year. Investors are happy to see both sales and profits headed in the right direction after a brutal multiyear stretch of declines that was brought on by food safety issues in 2015. In the fiscal first quarter, revenue rose 2.2% as higher menu prices offset slight traffic declines. Profit margin jumped to 20% of sales from 18% a year ago. Investors betting on the stock today have to hope that new CEO Brian Niccol can extend those modestly positive results through a risky turnaround plan that includes new menu items and a revamped loyalty program.

BJ's Restaurants: Up 69%

California-based brewhouse chain BJ's Restaurants (NASDAQ: BJRI) has had a good year so far. Comparable-store sales rose 4.2% in the first quarter, and while most of those gains came from higher menu prices, the restaurant was also aided by modestly higher customer traffic. BJ's has seen many of its newest menu initiatives, including slow-roast prime rib, hit a chord with in-store diners even as its delivery sales spike. CEO Greg Trojan and his team are hoping to press both of those advantages over the coming quarters, but investors are even more optimistic about the company's balanced approach to store launches. It plans to open six restaurants this fiscal year, down from 10 in 2017, and surpass 200 locations across just over 26 U.S. states.

Noodles & Co.: Up 131%

It might seem odd that the industry's biggest winner so far this year isn't growing. In fact, Noodles & Co. (NASDAQ: NDLS) recently posted a quarterly net loss while revenue decreased 5%. But that result still shot past investors' expectations by showing surprising progress in the casual-dining chain's recovery efforts. Noodles & Co. has lots of work ahead of it before it can snap out of its four-year stretch of annual net losses. Yet, with shares having fallen by over 80% since 2013, even modestly good news proved to be enough to spark at least a short-term rally in the stock.

Picking favorites

The above list offers investment opportunities that include powerful, established franchises in addition to struggling rebound candidates. If you prefer the first category, you might want to take a closer look at industry leader Domino's. As for those riskier turnaround options, Chipotle offers an attractive mix of brand power and modest growth expectations that could lay the foundation for solid long-term returns from here.

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Demitrios Kalogeropoulos owns shares of Chipotle Mexican Grill, McDonald's, and Starbucks. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool has a disclosure policy.