If you try to narrow down one single deciding factor that favors either fast food or restaurant stocks, the metrics are all over the place. If one is going purely by share price change, then Domino’s Pizza, Inc. (NYSE:DPZ) has been the better buy by far the last 5 years. However, any long-term investor knows that past performance isn’t really a good indicator of future performance. If you are going by profit margins, McDonald’s Corporation (NYSE:MCD) turns into the better play, with 5 year profit margin averages near 20%. However, they have the largest market cap (over $120 billion) and one could say most of the easy money has already been made since the Great Recession (over 91%). Instead, we need to dive deeper and find out what the following 5 companies, each of which represents a key sector of the restaurant industry, are doing now and where they may be going.
The Full Service Restaurant
Darden Restaurants, Inc. (NYSE:DRI) owns this category of the traditional sit-down full-service restaurant. With 2,107 restaurants (up from 1,959 a year ago) in the US and Canada that includes Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Seasons 52, Eddie V’s, and the newly acquired 43 Yard House’s, Darden Restaurants, Inc. (NYSE:DRI) is still in growth mode. According to Forbes, Darden Restaurants, Inc. (NYSE:DRI) is now the 417th largest company in the US. They have been able to reach this level by beating their 5 year quarterly net income average of $105 million in 4 of the last 5 quarters. Analysts earlier this year had price targets of $50-$52 per share when the stock was still trading in the $40 per share range. The stock already trades at nearly $53 per share and has increased over 17% this year alone. Arguably the industry leader in the full-service category, and trading at just 13 times earnings, Darden Restaurants, Inc. (NYSE:DRI) has the potential to go even higher–especially if the economy continues to improve.
The Restaurant/Gift Store Hybrid
By definition, hybrid means a product made by combining two different elements. Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL)’s 621 stores across 42 states fits this definition, since 80% of the company’s revenue comes from the restaurant portion while the rest comes from the gift store located adjacent to each one. The stock has been on a run with over 30% gains this year alone. Profits rose 19% from a year ago based on February earnings. In addition to earnings guidance recently being raised by a dime, the company has made news regarding insiders and big players buying. Director Glenn A. Davenport in October of last year bought 1000 shares of the stock for $67 a share. However, Sardar Biglari and his San Antonio firm is the restaurant’s largest shareholder with a 19.99% stake, but still doesn’t have a board seat since he also owns supposed competitor Steak ‘n Shake.