Just over halfway through 2019, the restaurant sector overall is not keeping pace with the S&P 500 (+20%) Russell 2000 (+16.7%), or Russell Microcap (+13.7%) Indexes year-to-date. A basket of 38 restaurant stocks I track (large and small) is up about 12%; however, size matter's here, as the bigger players are dominating.
The "Big Five" (a self-coined term) - consisting of McDonald's (MCD) (up 21% year to date), Yum Brands (YUM) (+21%), Darden Restaurants (DRI) (+25%), Chipotle Mexican Grill (CMG) (+73%) and Domino's Pizza (DPZ) (+13%) - are up an average of nearly 31%.
Chipotle is by far the best performer so far in 2019, and is trading near an all-time high. The company had its share of issues in recent shares, but has somewhat quietly recovered from the low $270 level in October of 2017, to close Tuesday at $745. It has easily beaten earnings estimates in the two reported quarters so far this year (including Q4 of 2018), and is expected to report second quarter results on July 26th. CMG currently trades at about 44x next year's consensus estimates.
Shake Shack (SHAK) (+61%) has also been on fire, and is the second best restaurant performer year-to-date. Shares, which slid to $41 during the December doldrums, closed Tuesday above $73. The trendy chain, which had 84 locations at the end of 2015, now has more than 200, and is in rapid growth mode. Investors seem willing to pay up for that growth, at this point anyway, with the stock trading at just under 100x next year's consensus earnings estimates. I finally made it to a Shake Shack (there are no local stores, but the company now has a location at Citizens Bank Park, home of the Phillies), and while pleased with the burger, found that I still prefer Five Guys, only more expensive. SHAK burgers are certainly not cheap; likely exacerbated in my case due to the ballpark location.
Dine Brands Global (DIN) (+47%) is having a good year, and recently broke the $103 level, an all-time high, before pulling back to the mid $97 level on Tuesday. With two earnings surprises under its belt in 2019, the company is scheduled to report second quarter earnings in early August. Still among the cheaper restaurant names at 12x next year's consensus estimates, only Brinker (EAT) and Bloomin' Brands (BLMN) are cheaper at 9x next year's consensus. The latter, which is about flat for the year, had been on my radar for quite a while, but I still have not pulled the trigger.
Potbelly (PBPB) (-40%) is the worst performer of the restaurant basket I follow. An earnings dud in May sent shares down 20% in one day (May 8th), and its been downhill ever since. A $14 stock less than a year ago, shares closed yesterday below $5. PBPB is not expected to be profitable in 2019, but is trading at 21x next year's consensus estimates (just three analysts cover the name). If you've followed this story, and noticed a jump in both assets and long-term debt in the first quarter, that is due to the recognition of operating leases on the balance sheet, per a recent accounting standard change. I've never had a bad meal at PBPB, and given the beating it has taken, will do a deeper dive on the name.
Another situation to be aware of is that Kura Sushi, currently a 21-unit chain, filed for an initial public offering yesterday. Not a fan of sushi myself, everyone else in our household is (as are most people I know), so this could be the start of an interesting trend in the publicly traded restaurant market.
