The restaurant industry witnessed a sharp decline in revenues during the pandemic’s peak due to several reasons, including social distancing and an acute labor shortage. However, circumstances have improved over the past one and a half years.
Danny Meyer, the founder of The Union Square Hospitality Group, said, "the opportunity to make more money now than during low-inflationary times has driven workers back to restaurants."
On the other hand, despite high prices, demand for restaurant services has remained stable. According to Statista, American table/full-service restaurant franchises had an approximate output of $72.80 billion in 2021, and the value is projected to reach $76.40 billion in 2022.
Furthermore, the global foodservice market is expected to grow at a CAGR of 10.8% from 2022 to 2029.
Given the backdrop, fundamentally sound restaurant stocks Arcos Dorados Holdings Inc. (ARCO), Ruth's Hospitality Group, Inc. (RUTH), RCI Hospitality Holdings, Inc. (RICK), Nathan's Famous, Inc. (NATH), and Good Times Restaurants Inc. (GTIM) look poised to deliver healthy returns and thus, might be ideal additions to your portfolio now.
Arcos Dorados Holdings Inc. (ARCO)
Headquartered in Montevideo, Uruguay, ARCO operates as a franchisee of McDonald's restaurants (MCD) and possesses the exclusive right to own, operate and grant franchises of MCD's restaurants in 20 countries. It operates approximately 2,261 restaurants.
ARCO's total revenues came in at $887.90 million for the second quarter ended June 30, 2022, up 49.8% year-over-year. Its net profit increased 193.6% year-over-year to $14.48 million. Also, its adjusted EBITDA increased 93.7% year-over-year to $91.36 million.
Analysts expect ARCO's revenue to increase 26.8% year-over-year to $3.36 billion in 2022. Its EPS is estimated to increase 87.5% year-over-year to $0.45 in 2022. It surpassed EPS estimates in three out of four trailing quarters. Over the past nine months, the stock has gained 48.4% to close the last trading session at $7.30.
ARCO has an overall A rating, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and a B grade for Growth and Sentiment. Within the Restaurants industry, it is ranked #2 out of 53 stocks. Click here to see ARCO's additional POWR Ratings for Stability, Quality, and Momentum.
Ruth's Hospitality Group, Inc. (RUTH)
RUTH and its subsidiaries develop, operate, and franchise fine dining restaurants under Ruth's Chris Steak House name. It has approximately 150 company-owned and franchisee-owned restaurants worldwide.
On August 12, 2022, RUTH announced the opening of its newest locations in Worcester and Long Beach. Also, on August 11, 2022, it announced the beginning of a new store in Melville. Such fresh openings are expected to boost the company's revenue generation in the near term.
RUTH's total revenues came in at $128.65 million for the second quarter ended June 26, 2022, up 16% year-over-year. Its Restaurant sales increased 15.9% year-over-year to $120.76 million. Also, its Franchise income came in at $5.13 million, up 13.3% year-over-year.
Street expects RUTH's revenue to increase 18% year-over-year to $506.31 million in 2022. Its EPS is estimated to increase 26.7% year-over-year to $1.48 in 2022. It surpassed EPS estimates in all four trailing quarters. Over the past nine months, the stock has gained 7.2% to close the last trading session at $18.22.
RUTH's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has a B grade for Quality and Value. RUTH is ranked #10 in the same industry. Click here to see the additional POWR Ratings for RUTH (Stability, Growth, Momentum, and Sentiment).
RCI Hospitality Holdings, Inc. (RICK)
RICK and its subsidiaries engage in hospitality and related businesses in the United States. The company operates through Nightclubs; Bombshells; and Other segments.
On July 28, 2022, RICK announced the closing of the acquisition of the Cheetah Gentlemen's Club in Hallandale Beach, Florida, and its associated real estate. This acquisition is expected to help the companies generate approximately $4 million in adjusted EBITDA.
RICK's total revenues came in at $70.71 million for the third quarter ended June 30, 2022, up 22.2% year-over-year. Its net income increased 13% year-over-year to $13.90 million. Also, its EPS increased 8% year-over-year to $1.48.
RICK's revenue is expected to increase 35.5% year-over-year to $264.62 million in 2022. Its EPS is estimated to increase by 40% per annum for the next five years. It surpassed EPS estimates in three out of four trailing quarters. Over the past month, the stock has gained 14.5% to close the last trading session at $65.21.
RICK has an overall rating of B, which equates to a Buy in our POWR Ratings system. It has a B grade for Growth, Quality, and Sentiment. RICK is ranked #7 in the same industry. Click here to see the additional POWR Ratings for RICK (Stability, Momentum, and Value).
Nathan's Famous, Inc. (NATH)
NATH and its subsidiaries are involved in the food service sector. NATH's restaurant system consists of four company-owned units in the New York City metropolitan area; and 239 franchised units in 18 states and 12 foreign countries.
NATH's total revenues came in at $39.72 million for the first quarter ended June 26, 2022, up 26.8% year-over-year. Its net income increased 23.7% year-over-year to $7.14 million. Also, its EPS increased 24.3% year-over-year to $1.74.
Over the past three months, the stock has gained 27.3% to close the last trading session at $65.
NATH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It also has an A grade for Quality and a B for Sentiment. NATH is ranked #3 in the same industry. Click here to see the additional POWR Ratings for NATH (Stability, Momentum, Growth, and Value).
Good Times Restaurants Inc. (GTIM)
GTIM and its subsidiaries engage in the restaurant business in the United States. It operates and franchises 42 Bad Daddy's Burger Bar restaurants; and 32 Good Times Burgers & Frozen Custard restaurants.
GTIM's total net revenues came in at $36.50 million for the third quarter ended June 28, 2022, up 7.5% year-over-year. Its restaurant sales increased 7.6% year-over-year to $36.27 million. Also, its Bad Daddy's Burger Bar restaurant sales increased 11.3% year-over-year to $27.17 million.
Analysts expect GTIM's EPS is estimated to increase 30% per annum for the next five years. Over the past three months, the stock has gained 7.3% to close the last trading session at $2.96.
GTIM’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our rating system. It has an A grade for Value and a B for Growth, Momentum, Quality, and Sentiment.
GTIM is ranked first in the same industry. Click here to see the additional POWR Ratings for GTIM (Stability).
ARCO shares were trading at $7.26 per share on Thursday afternoon, down $0.04 (-0.55%). Year-to-date, ARCO has gained 25.90%, versus a -16.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
5 Restaurant Stocks to Buy for Healthy Returns StockNews.com
