Restaurant stocks have been on fire the past two months. With just one quarter left in 2019 the sector overall is closing the performance gap with the S&P 500 (+22%) and outperforming the Russell 2000 (+15%), and Russell Microcap (+9.5%) indices year to date. A basket of 38 restaurant stocks I track (large and small) is up about 20% -- and there's a new performance leader at the head of the pack.
Shake Shack (SHAK) (+121%), is up nearly 40% since the July update, eclipsing Chipotle (CMG) (+91%) as the top performer. SHAK got a boost after beating second-quarter consensus estimates, rising 18% on Aug. 6, and it's been off to the races ever since. SHAK now trades at a rather lofty 120x next year's consensus estimates, and is at an all-time high.
The "Big Five" -- consisting of McDonald's Corp. (MCD) (up 21% year to date), Yum Brands Inc. (YUM) (+23%), Darden Restaurants Inc. (DRI) (+20%), Chipotle Mexican Grill Inc. (CMG) (+91%) and Domino's Pizza Inc. (DPZ) (-1%) -- are holding their own up an average of nearly 31%. However, that performance is being heavily subsidized by CMG's solid performance; take CMG out of the mix, and the remaining four are up an average of about 16%.
Dine Brands Global (DIN) (+9%) has not participated in the recent rally, pulling back significantly after breaking the $100 barrier on July 5, and is down more than 30% since. Much of that damage had already been done by the time that DIN, parent of Applebee's and IHOP, reported lower-than-expected second-quarter earnings ($1.71 versus $1.81 consensus), and lower full-year guidance on July 31. DIN now trades at about 9x next year's consensus estimates, among the cheapest names by that metric, and yields 3.9%.
There are a couple of smaller names just behind SHAK and CMG at the top, including Denny's (DENN) (+40%), Chuy's Holdings (CHUY) (+40%). DENN has been quite an amazing story over the past 10 years or so, very quietly staging a post-bankruptcy recovery, and seeing its shares rise tenfold.
Potbelly (PBPB) (-46%) retains it spot as the worst performer, followed by Fiesta Restaurant Group (FRGI) (-29%), and BJ's Restaurants (BJRI) (-28%).
In August, Kura Sushsi USA (KRUS) somewhat quietly went public at $14/share, and closed the first day of trading at $19.61, up 40% over the IPO price. Shares topped out near $27 on Aug. 20, and have since pulled back to the mid-$19 range. Given the country's fascination with sushi (present company excluded), the 23-location chain, currently with units in California (13), Texas (8), Georgia (1), Illinois (1), and Nevada (1), could be one to watch. At 72x next year's consensus earnings estimates, however, there's quite a bit of growth already priced in. But it's all about execution, and managing growth, which takes skill, precision, and capital.
That's a tall order, and was something that Zoe's Kitchen, by way of example, could not do while it was public. Eventually it was taken out at just $12.75/share, below the $15 IPO price, and significantly below the $45 all-time high.
