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.

8. Shake Shack Inc. (NYSE:SHAK)

Shake Shack Inc. is a modern-day burger stand that runs, franchises and owns a restaurant chain. It serves hot dogs, hamburgers, shakes, chicken, and other products. The company’s stock price appreciation at a CAGR of 12% does not do justice to a sales growth rate of 18% over the past 5 years. The stock is currently trading at the same levels it was 4 years ago, which is why we believe it is undervalued.

The reason for the lack of performance is the company’s future growth. Markets are forward-looking and despite an impressive 5-year record, the company isn’t that optimistic about the upcoming 3 years. The company itself projects revenue growth of low teens over the course of 2025, 2026, and 2027. Having said that, it continues to perform well at a fundamental level even if it can’t sustain its growth rate. For an investment like this, any growth catalyst often results in a re-rating, bringing handsome price appreciation with it.

7. Sweetgreen Inc. (NYSE:SG)

Sweetgreen Inc. runs a chain of fast-food restaurants offering healthy food. It also provides the facility to place online orders through its mobile ordering platform. The company’s innovative Infinite Kitchen model is becoming increasingly popular among consumers and is likely to drive the company’s future growth.

Analysts at Citigroup recently upgraded the stock to Buy from Neutral and increased the price target to $49. They think that there is a substantial upside to the stock on the back of its Infinite Kitchen Model. The Infinite Kitchen model uses a robotic line to prepare food. This reduces labor costs and improves efficiency, leaving the staff to cater to customers, thus improving the overall customer experience.

After enjoying 200% returns within the span of a year, the stock is currently down 32% from its highs, giving an attractive buy opportunity.

6. Super Hi International Holding Ltd. (NASDAQ:HDL)

Super Hi International Holding Ltd. is an investment company that invests in the food business and runs branded Chinese restaurants under the brand Haidilao. It also provides food delivery services and sells hot pot condiment products as well as food ingredients.

HDL’s growth story hinges on two variables: new store openings and margin expansion. According to the CEO, the US is the biggest opportunity for the company, and new outlets in 2025 will help the company tap into this opportunity. Currently, the company makes most of its revenue from South East Asia but the renewed focus on North America is where the future growth lies.

Analyst estimates for the company’s fiscal 2024 margins have moved up from 4% to 4.4%. In three years, these margins are expected to go above 7%. When combined with the new store openings, this could significantly alter the company’s financial position in three years.

Investors will note that the company only went to IPO just last year. So a 34% growth rate requires further investigation before one takes a position in the stock. Having said that, stocks like these also offer a multi-bagger opportunity.

5. First Watch Restaurant Group Inc. (NASDAQ:FWRG)

First Watch Restaurant Group Inc. runs a daytime-only restaurant chain under the First Watch Trade name and serves brunch, lunch, and breakfast. Its stock is down 10% for the year and currently trading below its IPO price. This could change once the company resolves its traffic problem, which isn’t entirely of its own making. It is an industry-wide issue expected to ease in 2025.

The growth rate of 24% may not be sustainable for FWRG but this doesn’t undermine the company’s growth story in any way. This month, the company announced that it had achieved its target of 25 new store openings in Q4, despite minor delays at some locations. More openings are expected this year as the CEO Chris Tomasso updated the company’s shareholders:

 In 2025, we plan to build on our leading position in the Daytime Dining category through a robust real estate pipeline and with our talented team committed to driving our long-term growth strategy.

4. Kura Sushi USA Inc. (NASDAQ:KRUS)

Kura Sushi USA Inc. operates a chain of tech-driven Japanese restaurants that offers a variety of Japanese dishes, Sushi, and desserts. Despite having a market cap of just under a billion dollars, we included the stock in our list because it spent most of the last year trading above our $1 billion threshold.

As is often the case with such companies, Kara raised $65 million in November after which the stock has struggled to continue its move up. It is also down 15% YTD, offering a good opportunity for people searching for small caps to rotate out of large caps.

In fiscal 25, the company intends to open 14 new stores to add to its existing 64 locations. The cash infusion through November’s stock offering allows the company to continue expanding locations at 22% for a further 2 years. The company is, however, struggling to keep up with same-store sales in a tough environment. On top of that, it is also dealing with higher labor costs. An operational review that has already been concluded should address some of these issues after which the finances could start looking really pretty. At current price levels, it is a bet worth taking.

3. Chipotle Mexican Grill Inc. (NYSE:CMG)

Chipotle Mexican Grill Inc. is a restaurant chain that provides Mexican-inspired food & beverages including burrito bowls, tacos, burritos, salads, and quesadillas. It also offers delivery and other related services through its app and website. The company has grown its sales by just over 15% in the last 5 years.

CMG continues to add more restaurants across the US, which increases its ability to generate more revenue. The comparable restaurant sales were up 11.1% in Q2 and 6% in Q3. There is no reason for the company to stop growing at the same rate in the near term.

What makes CMG even more impressive is its almost zero debt and balance sheet, which is the envy of many. Positive guidance and international growth set up the company well to bounce back from its recent poor performance. Moreover, CMG is incorporating robotics and AI in its workflows which will not only improve user experience but also help it enhance its bottom line.

2. Dutch Bros Inc. (NYSE:BROS)

Dutch Bros Inc. runs and operates a drive-thru shop chain that operates in franchising, company-oriented shops, and other segments. It delivers through online channels under Dutch Bros and company-operated shops in the U.S.

A 42% annual sales growth rate is impressive even for a company that just went to IPO less than 4 years ago. This is also the reason for the high valuation that the company enjoys at a PE of 207. Apart from serving high-quality food, the restaurant is attractive as a business because of its innovation, including mobile ordering and programs like Dutch Rewards.

Earlier this month, Baird upgraded the stock from Neutral to Outperform. Analysts were conscious of the stock’s 62% returns in 6 months but still believe an outperformance over the next half year or so is possible.

1. Texas Roadhouse Inc. (NASDAQ:TXRH)

Texas Roadhouse Inc. runs a casual dining restaurant chain that serves American-inspired food. The company has restaurants in 49 states of the U.S. and also in ten countries around the world. It operates and manages restaurants under Jaggers, Texas Roadhouse, and Bubba’s 33 names.

TXRH is a restaurant that has survived 20 years of Wall Street attention and grown at a pace it was comfortable with. The same cannot be said about a few other restaurants that were unable to deal with their business post-IPO. The company has increased its restaurant count from 162 at IPO to 775 now. The stock continues to enjoy a high valuation and has been growing its sales at just over 15% since 2019.

The stock also recently received an upgrade from Morgan Stanley, acquiring an Overweight rating from the prior Equal Weight. The investment bank is optimistic about a restaurant recovery this year, though the size of the recovery may not be that significant.

Texas Roadhouse Inc. is not on our latest list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 45 hedge fund portfolios held TXRH at the end of the third quarter which was 42 in the previous quarter. While we acknowledge the potential of TXRH as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as TXRH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.