In 2024, the restaurant industry will likely see continued growth in fast casual and health-conscious segments, with fine dining experiencing more realistic growth rates. Therefore, I think fundamentally sound restaurant stocks, Chuy's Holdings, Inc. (CHUY), Rave Restaurant Group, Inc. (RAVE), and Nathan's Famous, Inc. (NATH), could push investors portfolio towards success.
The United States full-service restaurant market is expected to grow at a CAGR of 11.3% until 2029. A significant rise in tourist arrivals is driving the market growth, helping to capitalize on the opportunities presented by the influx of visitors. Also, with the rise in out-of-home consumption after COVID-19, 80% of US people prefer ethnic cuisines at least once a month in fine dining restaurants.
According to the National Restaurant Association 2024 State of the Restaurant Industry Report, restaurant sales are forecast to exceed $1.1 trillion in sales this year, marking a new milestone for the industry that will employ over 15.7 million people in the US by the end of 2024.
Moreover, the US fast casual restaurant market growth is aided by the rising consumer demand for inexpensive, quick, and healthier meals. Various working professionals seek healthy meal options for lunch without breaking the bank. Many fast-casual restaurants also offer gluten and lactose-free food options, among others, further broadening their consumer base.
Therefore, the US fast casual restaurant market is projected to grow at a CAGR of 6.4% until 2032.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Restaurants stocks, beginning with the third choice.
Stock #3: Chuy's Holdings, Inc. (CHUY)
CHUY owns and operates full-service restaurants under the Chuy’s name in the United States.
CHUY’s trailing-12-month Return on Total Assets of 6.01% is 46.5% higher than the industry average of 4.10%. Its 8.20% trailing-12-month CAPEX/Sales is 168.4% higher than the 3.06% industry average.
During the third quarter, which ended September 24, 2023, CHUY reported revenue and income from operations of $113.46 million and $7.35 million, up 6.4% and 35.4% year-over-year, respectively. The company’s adjusted net income and net income per common share grew 33.1% and 41.9%, respectively, from the prior year’s quarter to $7.86 million and $0.44.
Analysts expect CHUY’s revenue and EPS to grow 12% and 41.2% year-over-year to $116.63 million and $0.38, respectively, for the fourth quarter ended December 2023. The company surpassed the revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Over the past three months, the stock has gained 4% to close the last trading session at $35.05.
CHUY’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.
It has a B grade for Growth. It is ranked #4 out of 42 stocks in the Restaurants industry.
Beyond what is stated above, we’ve also rated CHUY for Value, Sentiment, Momentum, Quality, and Stability. Get all CHUY ratings here.
Stock #2: Rave Restaurant Group, Inc. (RAVE)
RAVE engages in the operation and franchising of pizza buffet, delivery/carry-out (delco), and express restaurants under the Pizza Inn and Pie Five trademarks in the United States and internationally. The company operates through three segments: Pizza Inn Franchising; Pie Five Franchising; and Company-Owned Restaurants.
RAVE’s trailing-12-month gross profit margin of 67.20% is 89.3% higher than the industry average of 35.51%. Its trailing-12-month levered FCF margin of 16.14% is 194.8% higher than the 5.48% industry average.
For the fiscal 2023 third quarter, which ended March 26, 2023, RAVE’s revenues increased 13.4% year-over-year to $2.97 million. The company’s adjusted EBITDA stood at $568 million. In addition, its net income came in at $323 million. Also, its net income per share of common stock came in at $0.02.
Shares of RAVE has gained 19.1% over the past year to close the last trading session at $1.87.
It’s no surprise that RAVE has an overall rating of B, which equates to Buy in our proprietary rating system.
RAVE has an A grade for Quality and a B in Sentiment. It is ranked #2 in the same industry.
In addition to the POWR Ratings highlighted above, one can access RAVE’s ratings for Growth, Stability, Momentum, and Value, here.
Stock #1: Nathan's Famous, Inc. (NATH)
NATH is a licensor, wholesaler, and retailer of Nathans brand products, notably Nathans Beef Hot Dogs. The company’s segments include Branded Product Program; Product licensing; and Restaurant operations. Its products are available in approximately 79,000 locations.
NATH’s trailing-12-month EBIT margin of 23.44% is 209.1% higher than the industry average of 7.58%. Its trailing-12-month asset turnover ratio of 2.20x is 123.9% higher than the industry average of 0.98x.
During the fiscal third quarter that ended December 24, 2023, NATH’s total revenues increased 3.3% year-over-year to $28.89 million. Its income from operations came in at $5.14 million. Moreover, the company’s net income and income per share stood at $2.61 million and $0.64 for the quarter, respectively.
Over the past three months, the stock has gained 3.2% to close the last trading session at $67.61.
NATH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Quality and a B in Sentiment. It is ranked first in the same industry.
Click here to access the additional NATH ratings (Growth, Momentum, Value, and Stability).
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CHUY shares were trading at $33.98 per share on Tuesday afternoon, down $1.07 (-3.05%). Year-to-date, CHUY has declined -11.12%, versus a 3.99% 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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