Restaurant stocks continue to enjoy a banner year -- even if diners feel like their wallets are getting devoured at the drive-through.
A basket of more than 40 restaurant names I follow is up about 34% year to date, well ahead of the S&P 500 (up 16.7%), Russell 2000 (up 9.5%) and Russell Microcap (up 3.4%). The reason for including the smaller Russell Indexes is that the average market cap for the restaurant basket I follow is about $9 billion, but that is skewed by the market caps of "Big Five" names McDonald's (MCD) ($215 billion) Chipotle (CMG) ($57 billion) and Yum Brands (YUM) ($38 billion). There are 17 that have market caps under $500 million.
Year-to-date, the Big Five are making strides-and are up an average of about 18% year-to-date. The Big Five includes McDonald's (up 13%), Chipotle Mexican Grill (up 48%), Yum! Brands (up 6%) Domino's Pizza (DPZ) (up 2%) and Darden Restaurants (DRI) (up 23%). Backing out the Big Five, the remaining restaurant stocks are up an average of about 36%.
The best performers include Carrols (TAST) (up 293%), Red Robin (RRGB) (up 167%), Kura Sushi (up 119%), Shake Shack (SHAK) (up 88%), and Sweetgreen (SG) (up 84%). TAST and RRGB, which are not profitable on a trailing 12-month basis, are both attempting to turn around and are the beneficiaries of a rally in some lower quality/on-the-bubble names. There are others in that camp including Potbelly (PBPB) (up 64%), and BurgerFi (up 34%).
There are just four restaurant names in negative territory, including Wendy's (WEN) (down 3%), Papa John's (PZZA) (down 5%), Dine Brands Global (DIN) (down 7%), and Noodles (NDLS) (down 43%). DIN, parent of Applebee's and International House of Pancakes, a stock I previously owned, is down 28% since mid-February. It currently trades at just 7 times 2024 consensus estimates, and yields about 3.5%. One of the knocks on DIN has been debt, which stood at $1.28 billion at the end of the latest quarter; net of cash ($182 million or $11.60/share) debt is $1.1 billion. However, I will be taking another look at this one.
In IPO land, the honeymoon for CAVA Group (CAVA) (up 107% from the $22 IPO price) is still in full swing. CAVA's market cap ($5.16 billion) now ranks ahead of Wendy's (WEN) ($4.5 billion), Shake Shak (SHAK) ($3.08 billion), Papa John's (PZZA) ($2.5 billion), Bloomin' Brands (BLMN) ($2.3 billion), Cracker Barrel (CBRL) ($2.1 billion), Jack In The Box (JACK) ($1.96 billion), and Cheesecake Factory (CAKE) ($1.83 billion), many others. It's also about the equivalent of the combined market caps of Brinker (EAT) ($1.69 billion), Denny's (DENN) ($650 million), Cracker Barrel, and Chuy's (CHUY) ($728 million), all of which are profitable, while CAVA is not. What's wrong with that picture?
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