11 Best Restaurant Stocks To Buy Today

In this article, we will take a look at the 11 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.

5. Domino’s Pizza, Inc. (NYSE:DPZ)

Number of Hedge Fund Holders: 32

Domino’s Pizza, Inc. (NYSE:DPZ) is an Ann Arbor, Michigan-based operator of a chain of pizza restaurants.

Experts believe that Domino’s Pizza, Inc. (NYSE:DPZ) is facing tough comparables as pizza consumption increased significantly during the COVID-19 pandemic through takeaway and home delivery services and the growth figures for the company aren’t as strong as they were during the pandemic. However, there is an overall belief that the outlook of the pizza category is still strong given its staple nature in the life of American consumers, and the near-term concerns are blown out of proportion. Domino’s Pizza, Inc. (NYSE:DPZ) offers a dividend yield of 1.32% as of October 31.

Domino’s Pizza, Inc. (NYSE:DPZ) is considered one of the best restaurant stocks as the company’s historical 3-year return on invested capital (excluding goodwill) is 186.4%, while its estimated cost of capital is 7.8% as of Q3 2022. On October 14, Andrew Strelzik at BMO Capital gave Domino’s Pizza, Inc. (NYSE:DPZ) stock an Overweight rating with a target price of $400. The analyst appreciated the company’s better-than-expected same-store sales in the Q3 2022 results.

4. Chipotle Mexican Grill, Inc. (NYSE:CMG)

Number of Hedge Fund Holders: 39

Chipotle Mexican Grill, Inc. (NYSE:CMG) is a Newport Beach, California-based fast-casual restaurant chain. The restaurant is known for its healthy offerings.

Following its Q3 2022 results, Joshua Long at Stephens reiterated an Overweight rating on Chipotle Mexican Grill, Inc. (NYSE:CMG) stock with a target price of $1,760. The analyst highlighted the company’s better-than-expected quarterly results as it outperformed adjusted EPS estimates. Revenue increased by 12.8% to $2.2 billion, while the adjusted EPS of $9.51 was 32 cents higher than the analysts’ estimate of $9.19. Following the results, the analyst also increased his Q4 2022 adjusted EPS forecast as Chipotle Mexican Grill, Inc. (NYSE:CMG) shared that it anticipates comparable store sales to grow in the mid-single to the high-single-digit range in the next quarter.

Here’s what Pershing Square Holdings said about Chipotle Mexican Grill, Inc. (NYSE:CMG) in its Q2 2022 investor letter:

“Chipotle Mexican Grill, Inc. (NYSE:CMG) continued its impressive performance in 2022 driven by the ongoing recovery of in-restaurant sales, price increases to cover cost inflation, and successful menu innovation including pollo asado. During the second quarter, Chipotle continued to lead the restaurant industry in growth for both same-store sales (“SSS”) and new restaurants, with SSS growing 10% year-over-year or 30% on a three-year cumulative basis. On-premise sales grew 36% as consumers resumed pre-pandemic routines, while digital sales declined only 3%, continuing their persistence despite the growth of conventional sales. Chipotle remains on track to grow its store base by approximately 8% this year with a longer-term annual store growth aspiration of nearly 10% once current headwinds around construction, permitting, and supplies ease.

We believe Chipotle is one of the best-positioned consumer companies for the current inflationary world. Given significant inflation in food and labor costs, management has planned a menu price increase of approximately 4% for August following a similarly-sized price increase in March. The company has tremendous pricing power due to the superb quality of its food which is priced at a discount to many competitors with inferior offerings, marketing focused on food quality and freshness rather than cost, and a customer base that over-indexes to higher-income consumers, some of whom are trading down from pricier alternatives.

Chipotle’s economic model remains firmly intact, with restaurant-level margins in excess of 25% in the second quarter, up 0.8% year-over-year, and a consistent level of profitability expected for the current quarter. The company is debt-free and generates nearly all its sales in the U.S., insulating its earnings from the foreign currency headwinds facing many other large consumer companies. …” (Click here to read the full text)

Chipotle Mexican Grill, Inc. (NYSE:CMG) was held by 39 hedge funds as of Q2 2022.

3. Yum! Brands, Inc. (NYSE:YUM)

Number of Hedge Fund Holders: 40

Yum! Brands, Inc. (NYSE:YUM) is a Louisville, Kentucky-based franchise operator of leading restaurant brands like KFC, Pizza Hut, Taco Bell, and the Habit Burger Grill.

Andrew Charles at Cowen gave Yum! Brands, Inc. (NYSE:YUM) stock an Outperform rating with a target price of $130 on October 19. The analyst has a bullish stance on Yum! Brands, Inc. (NYSE:YUM), as he anticipates the company to benefit from the high comparable store sales for Taco Bell during Q3 2022. Owing to a number of growth drivers, including the opening of new shops, an increase in same-store sales, margin improvement, and share repurchases, Yum! Brands, Inc. (NYSE:YUM) has strong growth potential for the future. In line with this view, analysts predict that the company will increase its earnings per share by 15% in 2019 and another 13% in 2024, making it one of the best restaurant stocks to hold. Yum! Brands, Inc. (NYSE:YUM) plans to increase the number of its stores by 4% to 5% annually on average.

Yum! Brands, Inc. (NYSE:YUM) was held by 40 hedge funds as of Q2 2022.

2. McDonald’s Corporation (NYSE:MCD)

Number of Hedge Fund Holders: 50

McDonald’s Corporation (NYSE:MCD) is a Chicago, Illinois-based operator of fast food chain restaurants. The company claims to serve 69 million customers daily and has a presence in more than 100 countries through its 40,000 locations.

On October 28, Christopher Carril at RBC Capital increased the price target on McDonald’s Corporation (NYSE:MCD) from $275 to $295 and reiterated an Outperform rating on the stock. The analyst thinks that the company’s Q3 2022 earnings beat highlights both the offensive and defensive qualities of the stock during these uncertain economic times. McDonald’s Corporation (NYSE:MCD) has been attracting investor attention as one of the best restaurant stocks in the market.

Analysts think the US business of McDonald’s Corporation (NYSE:MCD) is less dependent on unit growth and should face tailwinds due to an environment that is focused on promotions. McDonald’s Corporation (NYSE:MCD) offers a dividend yield of 2.23% as of October 31. Since 1976, McDonald’s Corporation (NYSE:MCD) has boosted its dividends every year, reflecting 46 years of consecutive dividend growth.

As of Q2 2022, McDonald’s Corporation (NYSE:MCD) was held by 50 hedge funds.

1. Starbucks Corporation (NASDAQ:SBUX)

Number of Hedge Fund Holders: 55

Starbucks Corporation (NASDAQ:SBUX) is a Seattle, Washington-based operator of coffeehouses with a presence in 80 countries. The company has the distinction of being the operator of the biggest coffee house chain in the world.

Starbucks Corporation (NASDAQ:SBUX) stock offers a dividend yield of 2.49% as of October 31. Experts are positive about the long-term investment thesis of Starbucks Corporation (NASDAQ:SBUX) stock with slight short-term uncertainty. The strength of the brand, its focus on scale, innovation, rewards program, and positive outlook on coffee consumption will play in Starbucks Corporation’s (NASDAQ:SBUX) favor.

CEO Howard Schultz is trying to reinvent Starbucks Corporation (NASDAQ:SBUX) as the company is investing heavily in new equipment to drive greater efficiency and lower complexity of operations. Starbucks Corporation (NASDAQ:SBUX) is focusing on expanding its cold coffee-based beverages segment, as 80% of the company’s top line is now being generated by cold beverages. Starbucks Corporation (NASDAQ:SBUX) is considered amongst the best restaurant stocks as the management plans to boost EPS by 15% to 20% annually in the following years. These are ambitious but attainable long-term targets.

You can also take a peek at the Biggest Ecommerce Companies in the US and the Biggest Economies in the World in 2022.

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Disclosure. None. 11 Best Restaurant Stocks To Buy Today is originally published on Insider Monkey.