Should You Add Ruth's Hospitality (RUTH) to Your Portfolio?
Over the past few quarters, the U.S. restaurant space has not been too enticing for investors. Same-store sales growth has been dull in a difficult sales environment, the primary reason being an increased number of new restaurants amid restricted growth in eating-out budgets. Clearly, traffic too has been weak.
In fact, the first quarter of 2017 marked the fifth consecutive quarter of negative comp sales for the restaurant industry as a whole, making the mood somber. Also, lower prices at grocery stores as well as higher costs deterred customers from dining out.
However, this may turn out to be only transitory with things looking up in 2017 for the restaurant industry as the economy remains robust on the back of growing income and solid employment numbers. Consumer spending has also been in fine fettle of late.
Thus, investors should not shy away from putting money into this space and cash in on the bountiful opportunities. In fact, there are a number of companies with a decent performance history and strong fundamentals that seem to be unperturbed by the plight, thereby signaling a profitable investment opportunity.
One such company is Ruth's Hospitality Group, Inc. RUTH that continues to reflect strength in several areas and should make a value addition to your portfolio.
Stock Price Movement
Ruth's Hospitality’s shares have outperformed the broader Zacks categorized Retail-Restaurants industry over the past six months. While the stock rallied 20.9%, the broader industry gained 12.2%.
Though any stock can see a spike in price, it takes a real winner to consistently outperform the market. To this end, Ruth's Hospitality has outperformed the industry in all of the time frames that we considered – four-week, 12-week, 52-week as well as year to date.
Given its progress on the fundamentals, the stock should keep performing well in the quarters ahead.
Earnings & Revenue Growth
Arguably, nothing is more important than earnings growth as surging profit levels are often an indication of strong prospects (and stock price gains) for the company in question.
While Ruth's Hospitality has a historical EPS (earnings per share) growth rate of 13.2%, compared with the industry average of 7.2%, investors should really focus on its projected growth. Here, the company is looking to grow at a rate of 10.8%, crushing the industry average, which calls for EPS growth of just 7.5%.
Propelling the earnings forward is the company’s solid revenue growth story. Notably, the projected sales growth for the current year stands at 7.7%, much higher than the broader industry’s estimate of 1.9%.
Return on Equity
Ruth's Hospitality delivered return on equity (ROE) of 33.9% in the trailing 12 months compared with the industry’s gain of 8.1%. This indicates that the company reinvests more efficiently compared with its peers.
Low Beta Stock
A stock with beta less than 1 suggests that the price movement of the stock is not highly correlated with the market. Since they are less volatile than the market, they are safer bet at the moment. In this context, Ruth's Hospitality’s has an impressive beta of 0.29. Therefore, adding it to your portfolio will bring down the overall beta, thereby reducing its risk.
Earnings History and Estimate Revisions
Ruth's Hospitality has surpassed earnings estimates in three of the trailing four quarters, with an average beat of 4.07.
Moreover, the Zacks Consensus Estimate for Ruth's Hospitality’s 2017 earnings has moved up 1.9%, reflecting two upward revisions versus none downward, over the last 30 days. Also, 2018 earnings estimates have inched up 1.8%, on the back of three upward revisions versus no downward revision. The positive earnings estimate revisions indicate analysts’ confidence in the stock and also substantiates its Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Stocks to Consider
Other top-ranked placed stocks in this sector include Darden Restaurants, Inc. DRI, Yum China Holdings, Inc. YUMC and Dave & Buster's Entertainment, Inc. PLAY. All the three stocks carry the same Zacks Rank as Ruth's Hospitality.
Darden’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 3.35%. Further, for fiscal 2017, EPS is expected to grow 12.9%.
The Zacks Consensus Estimate for Yum China Holdings’ 2017 earnings climbed 4.4%, over the past 60 days. Besides, for 2017, EPS is expected to improve 10.7%.
Dave & Buster's earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 34.15%. Meanwhile, for fiscal 2017, EPS is projected to witness a rise of 15.5%.
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