By embracing innovation, leveraging technology, and prioritizing customer-centric approaches, the restaurant industry is well-poised to witness robust growth. Given the industry’s prospects, investors could consider buying top restaurant stocks Arcos Dorados Holdings Inc. (ARCO), Dine Brands Global, Inc. (DIN), and Biglari Holdings Inc. (BH) for exciting returns.
According to the National Restaurant Association 2024 State of the Restaurant Industry report, restaurant operators are cautiously optimistic about the year ahead. Restaurant sales are forecast to exceed $1.1 trillion in 2024, marking a new milestone for the industry that will employ more than 15.7 million people in the United States by the end of 2024.
Moreover, the food service market is witnessing substantial growth fueled by increasing demand for fast food and the expansion of various food chains worldwide. These trends are bolstered by the rising popularity of full-service and quick-service restaurants, catering to different customer needs, further strengthening the market development.
The global food service market is expected to reach $5.42 trillion by 2030, growing at a CAGR of 10.8%.
Besides, fast casual restaurants continue to thrive in a dynamic industry landscape, driven by consumer preferences for fresh and customizable food options, enhanced convenience, technology integration, and appeal to younger demographics. The global fast-casual restaurant market size is estimated to expand at a CAGR of 8.3% to $293.80 million by 2030.
Considering these conducive trends, let’s take a look at the fundamentals of the three best Restaurants industry stock picks, beginning with the third choice.
Stock #3: Arcos Dorados Holdings Inc. (ARCO)
Based in Montevideo, Uruguay, ARCO operates as a franchisee of McDonald's restaurants. It has the exclusive right to own, operate, and grant franchises of McDonald's restaurants in 20 countries and territories in Latin America and the Caribbean.
In terms of forward non-GAAP P/E, ARCO is trading at 12.59x, 20.7% lower than the industry average of 15.87x. Also, the stock’s forward EV/EBIT and Price/Sales multiples of 10.71 and 0.50 are lower than the respective industry averages of 13.85 and 0.97.
ARCO’s total revenues increased 15.7% year-over-year to $1.18 billion for the fiscal fourth quarter that ended December 31, 2023. Its operating income grew marginally from the prior year’s quarter to $81.79 million. Its net income rose 2.7% year-over-year to $56.13 million. The company’s EPS remained flat at $0.26.
Analysts expect ARCO’s revenue and EPS to increase 6.7% and 7.1% year-over-year to $4.62 billion and $0.92, respectively. Moreover, the company has surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 49.3% over the past year to close the last trading session at $11.02.
ARCO’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade in Value and Sentiment. It is ranked #7 out of 42 stocks in the Restaurants industry.
Beyond what is stated above, we’ve also rated ARCO for Growth, Momentum, Stability, and Quality. Get all ARCO ratings here.
Stock #2: Dine Brands Global, Inc. (DIN)
DIN owns, franchises, and operates restaurants in the United States and internationally. The company operates through six segments: Applebee's Franchise Operations; International House of Pancakes (IHOP) Franchise Solutions; Fuzzy's franchise operations; Rental Operations; Financing Operations; and Company-Operated Restaurant Operations.
On March 20, 2024, DIN’s parent company, Applebee, announced the launch of NEW $10 Bacardi Rum Buckets. Available in three tasty tropical flavors, Applebee’s Bacardi Rum Buckets feature premium spirits with Bacardi Superior and Bacardi Lime for only $10 served in an actual bucket. The new product launches might drive the company’s profitability and growth.
DIN’s trailing-12-month gross profit margin of 48.05% is 34.3% higher than the industry average of 35.77%. Also, the stock’s trailing-12-month EBIT margin of 22.72% is 197.8% higher than the industry average of 7.63%.
DIN’s total revenues for the fourth quarter ended December 31, 2023, came in at $206.30 million. Its gross profit increased 4.1% year-over-year to $98.43 million. Its net income grew 191.1% over the prior-year quarter to $33.04 million. In addition, net income available to common stockholders per share rose 97.2% year-over-year to $2.14.
Analysts expect DIN’s revenue for the second quarter ending June 2024 to increase 1.8% year-over-year to $212.07 million. For the fiscal year ending December 2025, the company’s revenue and EPS are expected to grow 1.6% and 5.3% from the prior year to $855.58 million and $6.86, respectively.
Shares of DIN have gained marginally over the past month to close the last trading session at $46.18.
DIN’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
DIN has a B grade for Value and Quality. It is ranked #4 out of 42 stocks in the Restaurants industry.
In addition to the POWR Ratings highlighted above, one can access DIN’s ratings for Growth, Momentum, Stability, and Sentiment here.
Stock #1: Biglari Holdings Inc. (BH)
BH primarily operates and franchises restaurants in the United States. The company owns, operates, and franchises restaurants under the Steak n Shake and Western Sizzlin names.
BH’s trailing-12-month gross profit margin of 42.53% is 18.9% higher than the 35.77% industry average. Likewise, the stock’s trailing-12-month EBIT margin of 10.78% is 41.3% higher than the 7.63% industry average.
During the nine months that ended December 31, 2023, BH’s total revenue increased 13.5% year-over-year to $274.65 million. Its net earnings came in at $10.90 million, compared to a loss of $42.04 million in the previous-year quarter. Also, its net earnings per average equivalent Class A share came in at $35.44, compared to a loss per share of $140.30 in the prior year’s quarter.
BH’s shares have gained 14.1% over the past year to close the last trading session at $188.60.
It’s no surprise that BH has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
BH has a B grade for Stability, Quality, Value, and Sentiment. Within the same industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have BH’s ratings for Growth and Momentum. Get all BH 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.
ARCO shares were unchanged in premarket trading Thursday. Year-to-date, ARCO has declined -12.69%, versus a 10.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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