Technological advancements have improved the long-term prospects of the restaurant industry. Chipotle Mexican Grill, Domino's Pizza Group and El Pollo Loco Holdings are all fundamentally sound restaurant stocks. Our proprietary rating system gives these stocks a B (Buy). Read on ....
The restaurant industry is poised for a strong recovery despite macroeconomic challenges. This is due to the cooling of inflation, increasing consumer spending and rapid digitization. Quality restaurant stocks such as Chipotle Mexican Grill, Inc., Domino's Pizza Group plc, (DPUKY), El Pollo Loco Holdings, Inc., (LOCO), could be a wise addition to your portfolio. These stocks have a POWR Rating of B (Buy).
According to the National Restaurant Association’s 2023 State of the Restaurant Industry Study, the food service sector is expected to generate $997 billion in revenue in 2023. This will be accompanied by a projected increase of 500,000 jobs despite rising food prices and increased competition.
A new Square study shows that restaurants are rethinking their business model to boost profits, keep operations running smoothly, and to continue serving their customers. 91% of restaurants plan to or have already invested in kitchen automation technology. 58% of restaurants prefer their own apps or websites for delivery.
AI also transforms the food industry, increasing transparency, supply chain management and customer service. It allows restaurant operators to streamline their operations, stay competitive and respond to the changing demands of clients. Affordable AI has transformed the industry to one that is efficient, transparent and trustworthy.
Global fast food and quick-service restaurant sales are expected to increase at a CAGR of 6.1% to $371.47 Billion by 2027.
Let's dig deeper into the fundamentals behind the stocks featured.
Chipotle Mexican Grill, Inc.
CMG operates Chipotle Mexican Grill. It serves burritos and burrito-bowls as well as tacos and salads.
CMG's ROCE for the trailing 12 months of 44.74%, is 345.8% greater than the industry average of 100.03%. CMG's ROTA trailing-12 months of 14.64 is 345.8% higher than the industry standard of 3.62.
CMG's revenue for the first fiscal year ending March 31, 2023 increased by 17.2% over the previous year to $2.37 Billion. The company's net income adjusted for inflation increased by 80.7% to $291.64 millions. The adjusted EPS was $10.50. This represents an increase of 84.2% over the previous year.
The consensus estimate of $9.88 Billion for the year ending in December 2023 represents an increase of 14.4% year-over year. The company's EPS for the same time period is expected to increase by 35.6%. In three of the four quarters prior, it exceeded EPS expectations. CMG shares closed the last trading day at $2101.49, a gain of 63.1% in the past year.
CMG's Power Ratings reflect a positive outlook. The stock is rated B overall, which equates to a Buy rating in our proprietary system. The POWR ratings assess stocks based on 118 factors, each of which has its own weighting.
CMG is rated B for Sentiment and Momentum. It is ranked 15th out of 45 stocks in the A-rated restaurant industry. Click here to see CMG's additional POWR ratings for Growth, Stability and Value.
Domino's Pizza Group plc (DPUKY)
DPUKY, based in Milton Keynes (United Kingdom), owns, operates and franchises Domino's Pizza restaurants. It leases and operates its stores throughout the United Kingdom, Ireland and Canada.
DPUKY’s ROTC for the trailing 12-month period of 15.95%, is 161.7% higher than industry average of 6.10%. Its ROTA trailing-12 months of 15.67% is 332.66% higher than industry average 3.62%.
DPUKY Group revenue for the fiscal year ending December 25, 2022 increased 7% over the previous year to PS600.30 Million ($751.64 Million). The gross profit of the company increased by 1.8% over the past year to PS273.50 (342.45 million). The profit of the period grew by 4.2% to PS81.60 ($102.17) million.
Analysts predict that DPUKY will increase its revenue by 9.3% over the previous year, to $782.15 millions for the fiscal year ending in December 2023. The stock closed the last trading day at $7.15, up 47.4% in the past nine-month period.
DPUKY’s POWR ratings reflect its strong outlook. The stock is rated B overall, which in our rating system translates into a Buy.
It is ranked 9th in the Restaurants Industry. It is rated B for Momentum, Stability and Growth. Click here to see the DPUKY ratings of Growth, Value Sentiment and Quality.
El Pollo Loco Holdings, Inc. (LOCO)
LOCO operates and develops quick-service restaurants with the El Pollo Loco trademark.
LOCO’s CAPEX/Sales ratio for the trailing 12-month period of 4.66%, is 43.9% greater than the industry average of 3.24%. Its ROTA for the trailing-12 months is 4%, which is 10.4% more than the industry average of 3.62%.
LOCO's revenue total increased by 4.1% over the previous year to $114.53 millions in its fiscal first quarter ending March 29, 2023. The company's operating income grew by 133.5% to $7.75 millions from the prior-year quarter. The company's net profit grew 132.5% compared to the previous-year quarter, reaching $4.92million. Its EPS was $0.13, an increase of 116.7% over the previous year.
Street estimates that LOCO will grow its revenue by 2.6% over the past year to $482.08 millions for the fiscal year ending in December 2023. The EPS for the same time period is expected to increase by 23.5%. In all four quarters, it exceeded EPS expectations. The stock closed the last trading day at $9.14, up 14.8% in the past nine-month period.
LOCO is rated B overall, which equates to a buy in our POWR ratings system. It is rated B for both Value and Momentum. It is ranked #12 in the same sector.
In addition to the above ratings, we have also rated LOCO in terms of Growth, Stability and Sentiment. All LOCO ratings are available here.
The bear market is over.
Steve Reitmeister, an investment pro, sees signs that the bear market is returning. He has created a portfolio that will not only survive the downturn, but thrive in it!
CMG shares traded at $2,119.83 on Thursday morning. This is an increase of $18.34 (+0.87%). CMG shares have risen 52.78% year-to-date compared to the 15.25% increase in the benchmark S&P 500 Index during the same time period.
Rashmi K. Kumari
Rashmi's passion for capital markets, financial regulation, and wealth management led her to pursue an investment analyst career. She has a master's in commerce and aspires, with her degree, to help individual investors understand complex financial issues.