In this article, we will take a look at the 11 best restaurant stocks to buy today. If you want to see some more of the stocks, go to 5 Best Restaurant Stocks To Buy Today.
According to the 2022 State of the Restaurant Industry report by the National Restaurant Association, the total sales of the food service industry are expected to be posted at $898 billion this year, surpassing the pre-pandemic levels. However, the restaurant industry needs to overcome challenges related to rising inflation, increasing interest rates, supply chain disruptions, and labor shortages to match the rising demand. Around 70% of fast-service, self-service, and quick-service restaurants reported challenges related to the hiring and retention of labor. The restaurant industry added 1.7 million new employees to its workforce in 2021, taking the total count to 14.5 million employees. Despite this development, numerous companies were understaffed. By the end of 2022, the food service industry is projected to expand by another 400,000 employees to counter the labor shortage.
Numerous trends are emerging across the food service industry. Some of the best restaurant stocks, such as McDonald’s Corporation (NYSE:MCD), Starbucks Corporation (NASDAQ:SBUX), and Domino’s Pizza, Inc. (NYSE:DPZ), have been focusing on lowering their front-of-the-house operations and increasing the size of the kitchen to fulfill the rising demand for off-premises dining. Restaurants that offer online ordering services have highlighted that the online channel contributes 34% to their top line. Another element driving industry growth is the rising café culture in addition to the accessibility of healthy fast food options. Furthermore, the adoption of advanced point-of-sale and inventory management software has now become mainstream.
Photo by S O C I A L . C U T on Unsplash
Our Methodology
To shortlist the best restaurant stocks, we looked into the growth strategies of these companies in line with the emerging trends in the industry. The analyst ratings and the business fundamentals have also been discussed. We used Insider Monkey’s database of 895 hedge funds as of Q2 2022 to rank these stocks.
Best Restaurant Stocks To Buy Today
11. Portillo’s Inc. (NASDAQ:PTLO)
Number of Hedge Fund Holders: 5
Portillo’s Inc. (NASDAQ:PTLO) is an Oak Brook, Illinois-based fast-casual restaurant chain.
Experts believe that Portillo’s Inc. (NASDAQ:PTLO) operates in the white space providing the restaurant an opportunity to up-sell its products to its loyal customer base. The company is considered to be in the early stages of growth. Portillo’s Inc. (NASDAQ:PTLO) has set a target growth rate of 10% per year for the construction of new units, with the goal of creating a footprint of 600 domestic restaurants.
Despite the economic uncertainty, the comparative store sales of the restaurant were healthy during Q2 2022. Revenue observed a YoY increase of 7%, while same-store sales rose by 1.9%. In August, David Tarantino at Baird increased the target price of the stock from $22 to $30 and maintained an Overweight rating. In order to improve workforce performance, Portillo’s Inc. (NASDAQ:PTLO) is constantly putting techniques such as providing fringe benefits and career development programs into practice. The analyst believes the gains in productivity are expected to provide a boost to the bottom line of Portillo’s Inc. (NASDAQ:PTLO).
10. Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH)
Number of Hedge Fund Holders: 13
Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) is a New Orleans, Louisiana-based operator of over 150 steakhouses across North America.
The restaurant provides a fine dining experience that is experiencing pent-up demand as people are opting for experiential dining experiences post-COVID-19 pandemic. Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) is known for providing consistent taste and customer experience. On September 22, Joshua Long at Stephens started coverage on Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) stock with a target price of $22 and an Overweight rating. The analyst termed the stock as an attractive growth story within the fine-dining restaurant category.
Analysts think Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) has strong brand equity amongst its customers and is in a position to experience low single-digit comparable store sales and mid-single-digit unit growth in the long term. The stock also offers a forward annual dividend yield of 2.7% as of October 31.
Of the 895 hedge funds in Insider Monkey’s database, Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) was held by 13 hedge funds as of Q2 2022.
9. Wingstop Inc. (NASDAQ:WING)
Number of Hedge Fund Holders: 20
Wingstop Inc. (NASDAQ:WING) is a Garland, Texas-based chain of aviation-themed restaurants.
Following the company’s Q3 2022 results, Nick Setyan at Wedbush increased the target price for Wingstop Inc. (NASDAQ:WING) from $157 to $177 and reiterated an Outperform rating. The analyst highlighted that the company’s Q3 results were well ahead of expectations. Wingstop Inc. (NASDAQ:WING) saw its revenue increase by 40.9% YoY to $92.67 million. Meanwhile, adjusted EPS was recorded at 45 cents as opposed to the analysts’ forecast of 36 cents. Analysts anticipate Wingstop Inc. (NASDAQ:WING) to experience margin expansion in the future and continue on its growth trajectory.
Polen Capital discussed its bullish outlook on Wingstop Inc. (NASDAQ:WING) in its Q3 2022 investor letter. Here’s what the firm said:
“The top absolute contributors to the Portfolio’s performance over the quarter included Wingstop Inc. (NASDAQ:WING), The Trade Desk, and Paycom.
Wingstop, a franchised chicken wing restaurant chain, was the best performer in the period. The company reported better-than-expected results, highlighted exciting progress around international growth, and announced its intention to launch a chicken sandwich nationally. After a recent headquarter visit, we believe there are many favorable tailwinds for the business despite the worsening consumer outlook.”
8. Dine Brands Global, Inc. (NYSE:DIN)
Number of Hedge Fund Holders: 25
Dine Brands Global, Inc. (NYSE:DIN) is a Glendale, California-based full-service dining company franchising Applebee’s Grill & Bar and IHOP.
Dine Brands Global, Inc. (NYSE:DIN) stock has a forward dividend yield of 2.8% as of October 31. Experts believe that the brands under Dine Brands Global, Inc. (NYSE:DIN) are supported by strong demand. Applebee saw a comparable sales growth of 1.8% during Q2 2022, while IHOP recorded an increase of 3.6%.
In a research note issued on September 6, Todd Brooks at CL King resumed coverage on Dine Brands Global, Inc. (NYSE:DIN) stock with a target price of $84 and a Buy rating. Brooks highlighted that the average unit volume of the company’s both brands is moving in a positive direction. Analysts think Dine Brands Global, Inc. (NYSE:DIN) is undervalued as it is trading at 12.0x earnings currently, compared to the historical valuation of 14.2x earnings. Dine Brands Global, Inc. (NYSE:DIN) is one of the best restaurant stocks as it has the advantage of scale across its brands.
Simcoe Capital Management raised its stake in Dine Brands Global, Inc. (NYSE:DIN) by 30% during the second quarter of the year.
7. Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY)
Number of Hedge Fund Holders: 31
Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) is a Dallas, Texas-based company providing entertainment and dining experience at the same location. The company combines a full-service restaurant with a video arcade at all its venues, providing an opportunity to capture a greater share of consumers’ food and entertainment spending through its 140 locations across the US.
Compared to the P/E range of 14.1x and 32.6x from 2015 to 2019, Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) is trading at about 12.1x P/E of next year’s projections currently. Experts believe the current multiples provide an entry point for potential investors as the company is valued attractively and at the lower end of its multiples range. The Q2 2022 results revealed that Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) is gaining from its expanding outlets. The company’s revenue increased by an impressive 24.1% in Q2 from the pre-pandemic Q1 2019 levels.
Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) is also aggressively pursuing international expansion as it intends to open 11 new units across Saudi Arabia, United Arab Emirates (UAE), and Egypt. The company has entered into a partnership with Abdul Mohsen Al Hokair Holding Group for expansion in the Middle Eastern and North African markets.
As of Q2 2022, 31 hedge funds reported owning a stake in Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY).
6. Darden Restaurants, Inc. (NYSE:DRI)
Number of Hedge Fund Holders: 32
Darden Restaurants, Inc. (NYSE:DRI) is an Orlando, Florida-based operator of multiple restaurant brands through 1,850 locations. The company claims that it entertains 400 million guests annually.
In a note issued on October 6, Eric Gonzalez at KeyBanc increased the target price for Darden Restaurants, Inc. (NYSE:DRI) from $136 to $150 and maintained an Overweight rating. The analyst revised the target price following meetings with the company’s leadership team in Orlando, Florida. Gonzalez thinks that the portfolio of Darden Restaurants, Inc. (NYSE:DRI) is in a better position than its competitors as the brands offer affordability and have focused heavily on improving their products in the last two years. In Q1 FY23, Darden Restaurants, Inc. (NYSE:DRI) reported quarterly revenue of $2,446 million, up 6% from the same time a year earlier. This was fueled by 34 new restaurant openings during the period and a same-store sales increase of 4.2%. Darden Restaurants, Inc. (NYSE:DRI) has some of the industry’s best data insights and a detailed strategic planning process to improve operational efficiency.
In addition to Darden Restaurants, Inc. (NYSE:DRI), stocks such as McDonald’s Corporation (NYSE:MCD), Starbucks Corporation (NASDAQ:SBUX), and Domino’s Pizza, Inc. (NYSE:DPZ) are also amongst the leading stocks in the food service industry.
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Disclosure. None. 11 Best Restaurant Stocks To Buy Today is originally published on Insider Monkey.