The growing preference for fast, affordable, and easily accessible food options among consumers is transforming the restaurant industry and directing it toward continued growth. Further, the rapid adoption of cutting-edge technologies like AI has created new growth opportunities for the market players.
Considering the industry’s tailwinds, fundamentally sound restaurant stocks Domino's Pizza Group plc (DPUKY), El Pollo Loco Holdings, Inc. (LOCO), and Nathan's Famous, Inc. (NATH) could be ideal buys for substantial returns.
As society leans more towards modernization and digitalization, fast-food chains and casual-eating restaurant trends are picking a stronger pace owing to their cost-efficiency and convenience for consumers. Also, as consumers shift towards higher-quality ingredients and healthier eating habits, fast-casual restaurants are becoming more popular.
Therefore, amid strong economic growth, rising consumer spending power, rapid globalization, industrialization, and urbanization, the global fast-casual restaurant market is expected to grow to $293.80 billion by 2030, exhibiting growth at a CAGR of 8.3%.
Moreover, AI is revolutionizing all sectors and industries, and restaurants, and the fast food market is no exception. Artificial Intelligence (AI) enhances customer interactions and operational efficiencies, contributing significantly to the food and beverage market.
The AI in the food & beverages market is estimated at $9.68 billion in 2024 and is projected to reach around $48.99 billion by 2029, expanding at a noteworthy CAGR of 38.3%, driven by consumer demands and increasing dependence of market leaders on advanced technologies.
Given these favorable industry trends, it’s time to examine the fundamentals of the three stocks to consider in the Restaurant industry, starting with the third in line.
Stock #3: Domino's Pizza Group plc (DPUKY)
Headquartered in Milton Keynes, United Kingdom, DPUKY owns, operates, and franchises Domino's Pizza stores. The company operates stores in the United Kingdom and the Republic of Ireland and leases its stores.
DPUKY’s trailing-12-month gross profit margin and EBIT margin of 47.48% and 17.13% are 26.2% and 112.5% higher than the respective industry averages of 37.62% and 8.06%. Further, the stock's trailing 12-month net income margin of 11.44% is significantly higher than the 4.46% industry average.
For the first half that ended June 30, 2024, DPUKY's system sales were £767.70 million ($977.22 million), up marginally year-over-year, and it reported group revenue of £326.80 million ($415.99 million) for the same period. The company’s underlying EBITDA grew 0.4% from the prior period to £69 million ($87.83 million).
In addition, the company’s underlying profit before tax and EPS came in at £51.30 million ($65.30 million) and £0.11 for the period, respectively.
DPUKY’s stock has gained 6.5% over the past month to close the last trading session at $7.82.
DPUKY’s bright prospects are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Stability. Within the Restaurant industry, DPUKY is ranked #13 of 41 stocks.
Click here to access additional ratings of DPUKY for Momentum, Growth, Value, Sentiment, and Quality.
Stock #2: El Pollo Loco Holdings, Inc. (LOCO)
LOCO develops, franchises, licenses, and operates quick-service restaurants under the El Pollo Loco brand name. The company operates and franchises restaurants located in California, Nevada, Arizona, Texas, Colorado, Utah, and Louisiana and licenses its brand to restaurants in the Philippines.
LOCO’s trailing-12-month EBIT margin of 8.73% is 8.3% higher than the industry average of 8.06%. Also, the stock's trailing 12-month net income margin and levered FCF margin of 5.11% and 5.56% are considerably higher than the industry averages of 4.46% and 4.82%, respectively.
In the third quarter that ended on September 25, 2024, LOCO reported a total revenue of $120.39 million, and its income from operations was $10.14 million. Also, the company’s adjusted net income stood at $6.29 million or $0.21 per share for the quarter, respectively.
Furthermore, the company’s adjusted EBITDA increased 3% from the year-ago value to $15.45 million.
Analysts expect LOCO’s revenue and EPS for the second quarter (ending June 2025) to increase 1.8% and 15.4% year-over-year to $124.36 million and $0.30, respectively. Furthermore, the company topped the consensus revenue and EPS estimates in three of the trailing four quarters.
Shares of LOCO have increased 18.6% over the past six months and 55% over the past year to close the last trading session at $12.88.
LOCO’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
LOCO has a B grade for Value. It is ranked #3 out of 41 stocks in the same industry.
In addition to the POWR Ratings we’ve stated above, we also have LOCO ratings for Sentiment, Stability, Quality, Growth, and Momentum. Get all LOCO ratings here.
Stock #1: Nathan's Famous, Inc. (NATH)
NATH operates in the food service industry. The company owns and franchises restaurants under the Nathan's Famous brand name, and sells its products under the Nathan's Famous trademarks through various channels of distribution.
NATH’s trailing-12-month EBITDA and net income margins of 25.26% and 15.18% are 121.5% and 240.1% higher than the respective industry averages of 11.41% and 4.46%. Likewise, the stock’s trailing-12-month Levered FCF margin of 13.88% is 187.8% higher than the industry average of 4.81%.
During the second quarter that ended September 29, 2024, NATH’s total revenues increased 6.1% year-over-year to $41.11 million. Its income from operations grew 5.8% from the year-ago value to $9.63 million. Also, the company’s net income came in at $6.03 million and $1.47 per share, up 5.6% and 5% from the prior year’s quarter, respectively.
Additionally, the company’s adjusted EBITDA rose 5.9% from the prior year period to $10.35 million.
Over the past six months, the stock has surged 30.7% and 33.9% over the past year to close the last trading session at $87.27.
NATH’s POWR Ratings reflect its bright prospects. The stock has an overall grade of A, translating to a Strong Buy in our proprietary rating system.
NATH has an A grade for Quality. The stock also has a B grade for Sentiment. It is ranked #2 on the list of 41 stocks within the Restaurant industry.
To see other ratings of NATH for Growth, Momentum, Value, and Stability, click here.
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DPUKY shares were unchanged in after-hours trading Thursday. Year-to-date, DPUKY has declined -16.73%, versus a 26.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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