Morgan Stanley recently published a report on the restaurant industry, suggesting that the tough environment that the industry is currently facing may ease out in 2025, though only modestly. Restaurants will have to continue working on providing value meals to consumers who continue to struggle to balance their income and expenses.
A balanced job market could help keep labor costs steady. However, a political campaign against immigration could be a potential headwind for the industry. A growing emphasis on robotics to improve efficiency and customer service could also play a key role in the industry’s development this year, though it is too early to determine the financial implications of these moves.
We decided to shortlist a few stocks that we believe could benefit from an improving industry environment in 2025. To come up with the list of 10 restaurant stocks with a high growth rate, we only considered stocks that have grown by more than 15% in the last 5 years or since IPO and have a market cap of at least $1 billion.
10. CAVA Group Inc. (NYSE:CAVA)
CAVA Group Inc. runs a restaurant chain that provides Mediterranean-inspired food and salad dressing, dips, and spreads in grocery stores. Moreover, it offers mobile ordering and online platforms.
It is a competitor of companies like Dominos, Dutch Bros, Yum China Holdings, and TXRH. All these companies are valued in a narrow range in terms of market cap. However, only Dutch Bros has a higher sales growth, more than double that of CAVA. CAVA is also valued at a premium compared to its competitors, but that can be pinned down to impressive growth and cash flows.
For instance, while the entire sector struggled to improve its cash flows, CAVA grew its operating cash flow by 110% YoY. This is the type of company that Wall Street loves, hence the rich valuation which shouldn’t scare investors. The stock is already up 8% YTD while most of its industry peers struggle to appreciate in price.
9. Wingstop Inc. (NASDAQ:WING)
Wingstop Inc. runs and owns a restaurant chain under the Wingston brand that serves tenders, boneless wings, chicken sandwiches with fries, classic wings, and other dishes. The restaurant chain’s sales have grown at a staggering 23% in the last 5 years, tripling the stock value despite the recent 35% correction. It is this correction that makes the stock an impressive investment at the current levels as well.
If analyst ratings are anything to go by, the stock might have bottomed out. Barclays upgraded the stock earlier this month while Morgan Stanley also boosted its rating just a few days ago. Morgan Stanley has a price target of $389 on the stock, which is a 39.4% upside from current levels.
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