5 restaurant stocks to buy for healthy returns

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The restaurant industry saw a sharp drop in revenue during the peak of the pandemic for several reasons, including social distancing and a severe labor shortage. However, circumstances have improved over the past year and a half.

Danny Meyer, Founder of The Union Square Hospitality Group, said, “The opportunity to earn more money now that in times of low inflation has pushed workers back to restaurants.

On the other hand, despite high prices, demand for catering services remained stable. According to Statista, US sit-down/full-service restaurant franchises had an approximate production of $72.80 billion in 2021and the value is expected to reach $76.40 billion in 2022.

In addition, the global catering market is expected to growing at a CAGR of 10.8% from 2022 to 2029.

Given the backdrop, fundamentally sound restaurant stocks Arcos Dorados Holdings Inc. (ARCO), Ruth’s Hospitality Group, Inc. (RUTH), RCI Hospitality Holdings, Inc. (GRINDSTONE), Nathan’s Famous, Inc. (NAT) and Good Times Restaurants Inc. (GTIM) look poised to generate healthy returns and therefore could be ideal additions to your portfolio right now.

Arcos Dorados Holdings Inc. (ARCO)

Based in Montevideo, Uruguay, ARCO operates as a franchisee of McDonald’s restaurants (MCD) and has the exclusive right to own, operate and franchise MCD restaurants in 20 countries. It operates approximately 2,261 restaurants.

ARCO’s total revenue was $887.90 million for the second quarter ended June 30, 2022, up 49.8% year-over-year. Its net profit rose 193.6% year over year to $14.48 million. Also, its adjusted EBITDA grew 93.7% year over year to $91.36 million.

Analysts expect ARCO’s revenue to grow 26.8% year-over-year to $3.36 billion in 2022. Its EPS is expected to rise 87.5% from a year-over-year to reach $0.45 in 2022. It has exceeded EPS estimates in three of four consecutive quarters. Over the past nine months, the stock has gained 48.4% to close the last trading session at $7.30.

ARCO has an overall A rating, which equates to a Strong Buy in our POWR Rankings system. POWR ratings rate stocks on 118 different factors, each with its own weighting.

It has an A rating for value and a B rating for growth and sentiment. Within the Restaurants industry, it is ranked #2 out of 53 stocks. Click here to see ARCO’s additional POWR ratings for stability, quality and momentum.

Ruth’s Hospitality Group, Inc. (RUTH)

RUTH and its subsidiaries develop, operate and franchise fine dining restaurants under the Ruth’s Chris Steak House name. It has approximately 150 company- and franchise-owned restaurants worldwide.

On August 12, 2022, RUTH announced the opening of its new locations in Worcester and Long Beach. Additionally, on August 11, 2022, it announced the start of a new store in Melville. These new openings should boost the company’s revenue generation in the short term.

RUTH’s total revenue was $128.65 million for the second quarter ended June 26, 2022, up 16% year-over-year. Its restaurant sales rose 15.9% year-over-year to $120.76 million. Additionally, its franchise revenue was $5.13 million, up 13.3% year-over-year.

Street expects RUTH’s revenue to grow 18% year-over-year to $506.31 million in 2022. Its EPS is expected to increase 26.7% year-over-year. another to reach $1.48 in 2022. It has exceeded EPS estimates in the previous four quarters. Over the past nine months, the stock has gained 7.2% to close the last trading session at $18.22.

RUTH’s strong fundamentals are reflected in its POWR ratings. The stock has an overall B rating, which equates to a buy in our proprietary rating system.

It has a B rating for quality and value. RUTH is ranked #10 in the same sector. Click here to see additional POWR ratings for RUTH (Stability, Growth, Momentum and Sentiment).

RCI Hospitality Holdings, Inc. (GRINDSTONE)

RICK and its subsidiaries are engaged in hospitality and related businesses in the United States. The company operates through nightclubs; bombs; and Other Segments.

On July 28, 2022, RICK announced the closing of the acquisition of the Cheetah Gentlemen’s Club in Hallandale Beach, Florida and its associated real estate. This acquisition is expected to help the companies generate approximately $4 million in adjusted EBITDA.

RICK’s total revenue was $70.71 million for the third quarter ended June 30, 2022, up 22.2% year-over-year. Its net profit rose 13% year over year to $13.90 million. Additionally, its EPS rose 8% year-over-year to $1.48.

RICK’s revenue is expected to grow 35.5% year-over-year to $264.62 million in 2022. Its EPS is expected to grow 40% annually over the next five years. It has exceeded EPS estimates in three of four consecutive quarters. Over the past month, the stock has gained 14.5% to close the last trading session at $65.21.

RICK has an overall rating of B, which equates to a buy in our POWR rating system. It has a B grade for growth, quality and sentiment. RICK is ranked No. 7 in the same sector. Click here to see additional POWR ratings for RICK (Stability, Dynamics and Value).

Nathan’s Famous, Inc. (NAT)

NATH and its subsidiaries operate in the catering sector. NATH’s catering system consists of four company-owned units in the New York metro area; and 239 franchised units in 18 states and 12 foreign countries.

NATH’s total revenue was $39.72 million for the first quarter ended June 26, 2022, up 26.8% year-over-year. Its net profit rose 23.7% year over year to $7.14 million. Additionally, its EPS rose 24.3% year-over-year to $1.74.

Over the past three months, the stock has gained 27.3% to close the last trading session at $65.

NATH’s strong fundamentals are reflected in its POWR ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.

It also has an A rating for quality and a B for sentiment. NATH is ranked n°3 in the same sector. Click here to see additional POWR ratings for NATH (Stability, Momentum, Growth and Value).

Good Times Restaurants Inc. (GTIM)

GTIM and its subsidiaries operate restaurant businesses in the United States. It operates and franchises 42 Bad Daddy’s Burger Bar restaurants; and 32 Good Times Burgers & Frozen Custard restaurants.

GTIM’s total net revenue was $36.50 million for the third quarter ended June 28, 2022, up 7.5% year-over-year. Sales at its restaurants rose 7.6% year over year to $36.27 million. Additionally, sales at his restaurant Bad Daddy’s Burger Bar rose 11.3% year-over-year to $27.17 million.

Analysts expect GTIM’s EPS to grow 30% annually over the next five years. Over the past three months, the stock has gained 7.3% to close the last trading session at $2.96.

GTIM’s POWR ratings reflect this promising outlook. The stock has an overall A rating, which equates to a strong buy in our rating system. It has an A rating for value and a B for growth, momentum, quality and sentiment.

GTIM is ranked first in the same sector. Click here to see additional POWR ratings for GTIM (stability).


ARCO shares were trading at $7.26 per share on Thursday afternoon, down $0.04 (-0.55%). Year-to-date, ARCO has gained 25.90%, compared to a -16.26% rise in the benchmark S&P 500 over the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentary. After…

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