Restaurants increase convenience and give many people a place to unwind. But it’s not all sunshine and rainbows as they’re notoriously hard to run thanks to perishable ingredients, labor shortages, or volatile consumer spending. Unfortunately, these factors have spelled trouble for the industry as it has shed 4% over the past six months. This performance was worse than the S&P 500’s 1.6% decline.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Keeping that in mind, here is one restaurant stock boasting a durable advantage and two best left ignored.
Two Restaurant Stocks to Sell:
Bloomin' Brands (BLMN)
Market Cap: $683.7 million
Owner of the iconic Australian-themed Outback Steakhouse, Bloomin’ Brands (NASDAQ:BLMN) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.
Why Should You Dump BLMN?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Projected sales decline of 9.3% for the next 12 months points to an even tougher demand environment ahead
- Efficiency has decreased over the last year as its operating margin fell by 3.3 percentage points
At $8.05 per share, Bloomin' Brands trades at 4.5x forward price-to-earnings. Check out our free in-depth research report to learn more about why BLMN doesn’t pass our bar.
Yum China (YUMC)
Market Cap: $19.91 billion
One of China’s largest restaurant companies, Yum China (NYSE:YUMC) is an independent entity spun off from Yum! Brands in 2016.
Why Does YUMC Give Us Pause?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 5.2% over the last five years was below our standards for the restaurant sector
- Gross margin of 18.6% is below its competitors, leaving less money for marketing and promotions
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 4.4% annually
Yum China’s stock price of $52.51 implies a valuation ratio of 20.6x forward price-to-earnings. If you’re considering YUMC for your portfolio, see our FREE research report to learn more.
One Restaurant Stock to Watch:
McDonald's (MCD)
Market Cap: $223.4 billion
With nicknames spanning Mickey D's in the U.S. to Makku in Japan, McDonald’s (NYSE:MCD) is a fast-food behemoth known for its convenience and broken ice cream machines.
Why Are We Positive On MCD?
- Customers are lining up to eat at its restaurants as the company’s same-store sales growth averaged 4.5% over the past two years
- Asset-lite franchise model is reflected in its superior unit economics and a best-in-class gross margin of 56.9%
- Robust free cash flow margin of 27.1% gives it many options for capital deployment
McDonald's is trading at $311.05 per share, or 25.1x forward price-to-earnings. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.