The restaurant industry’s long-term prospects look bright amid technological advancements and steady consumer spending. Therefore, quality restaurant stocks Luckin Coffee Inc. (LKNCY), Carrols Restaurant Group, Inc. (TAST), and Fiesta Restaurant Group, Inc. (FRGI) could be wise additions to your portfolio now.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the restaurant industry.
Contactless methods and healthier menu options are becoming popular amid rising health consciousness. Moreover, tech investment is increasing to improve sales, ordering, employee management, and customer service, ensuring sustainability and profitability.
According to the National Restaurant Association’s 2023 State of the Restaurant Industry study, the food service industry is forecast to reach $997 billion in revenues in 2023, with a projected rise of 500,000 jobs, despite high food costs and increased competition.
The global food and beverage sector is predicted to grow at a 7.5% CAGR to $13.87 trillion by 2032. Food and beverage sales have increased steadily in recent years. Despite some considerable ups and downs, this sector is gradually heading toward innovation. The sector is now incorporating cutting-edge technology to create new trends.
In addition, the United States full service restaurants market is predicted to reach $554.12 billion by 2029, increasing at an 11.2% CAGR.
In light of these encouraging trends, let’s look at the fundamentals of the three top-rated B-rated Restaurants stocks, beginning with number 3.
Stock #3: Luckin Coffee Inc. (LKNCY)
Headquartered in Xiamen, the People’s Republic of China, LKNCY offers retail services of freshly brewed drinks and pre-made food and beverage items in the People’s Republic of China.
LKNCY’s trailing-12-month levered FCF margin of 13.93% is 173.3% higher than the 5.10% industry average. Its trailing-12-month ROTC of 18.20% is 199.4% higher than the 6.08% industry average.
For the fiscal second quarter that ended June 30, 2023, LKNCY’s total net revenues increased 88% year-over-year to RMB6.20 billion ($855.22 million). The operating income rose 385.4% over the prior-year period to RMB1.24 billion ($170.49 million). Its non-GAAP net income and EPS came in at RMB1.06 billion ($146.48 million) and RMB 3.36, up 297% and 281.8% year-over-year, respectively.
The consensus revenue estimate of 4.46 billion for the year ending December 2024 represents a 32.9% increase year-over-year. Its EPS is expected to grow at 30.8% year-over-year to $2.20 for the same period. LKNCY’s shares have gained 118.9% over the past year to close the last trading session at $35.46.
LKNCY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
LKNCY also has an A grade for Quality and a B for Sentiment. It is ranked #12 out of 44 stocks in the B-rated Restaurants industry. Click here for the additional POWR Ratings for Value, Stability, Momentum and Quality for LKNCY.
Stock #2: Carrols Restaurant Group, Inc. (TAST)
TAST, through its subsidiaries, operates as a restaurant company in the U.S. The company runs as a Burger King and Popeyes franchisee.
TAST’s trailing-12-month asset turnover ratio of 1.12x is 12.6% higher than the 1x industry average.
TAST’s restaurant sales increased 9.8% year-over-year to $485.22 million for the second quarter that ended July 2, 2023. Its adjusted EBITDA grew 193.4% from the year-ago value to $44.32 million. The company’s adjusted net income was $17.01 million and $0.27 per share, compared to an adjusted net loss of $8.90 million and $0.18 per share in the same period of 2022.
Street expects TAST’s revenue to increase 7.6% year-over-year to $1.86 billion for the year ending December 2023. Its EPS is expected to come in at $0.37 for the same period. It surpassed EPS estimates in all four trailing quarters. Over past nine months the stock has gained 295.4% to close the last trading session at $6.05.
TAST’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #6 in the same industry. It has an A grade for Growth and Sentiment and a B for Value. To see additional TAST’s ratings for Momentum, Stability and Quality, click here.
Stock #1: Fiesta Restaurant Group, Inc. (FRGI)
FRGI owns and operates the Pollo Tropical restaurant brand. The Company’s restaurants operate in the fast-casual and quick-service restaurant segments. The Company operates approximately 137 Pollo Tropical restaurants, all of which are located in Florida. It franchises its Pollo Tropical restaurants primarily in international markets.
FRGI’s trailing-12-month asset turnover ratio of 1.14x is 14% higher than the 1x industry average. Its trailing-12-month CAPEX / Sales of 5.37% is 65% higher than the 3.25% industry average.
FRGI’s total revenues came in at $106.84 million in the fiscal second quarter that ended July 2, 2023, up 8.5% year-over-year. Its adjusted EBITDA came to $11.1 million, up 94.7% year-over-year. Its non-GAAP net income came in at $4.95 million, compared to a net loss of $3.26 million in the prior-year quarter.
Also, its non-GAAP EPS came in at $0.19, compared to a loss per share of $0.14 in the year-ago period.
Analysts expect FRGI’s EPS to increase 13% over the next five years. Shares of FRGI’s has gained 23.7% over the past year to close the last trading session at $8.47.
It’s no surprise that FRGI has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Growth, Value, Momentum and Sentiment. It is ranked #5 in the same industry.
Beyond what is stated above, we’ve also rated FRGI for Stability and Quality. Get all FRGI ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
LKNCY shares were trading at $36.47 per share on Monday afternoon, up $1.01 (+2.85%). Year-to-date, LKNCY has gained 65.62%, versus a 13.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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