We recently published a list of 8 Cheap Restaurant Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) stands against the other cheap restaurant stocks to buy.
Soaring ingredient prices, operating expenses, and tipping fatigue have pressured the restaurant industry over the last few years. According to a report by National Public Radio (NPR) in August, the price of grocery items in the U.S. has grown 19% since the mid-2020s, compared to the cost of restaurant meals, which have risen by nearly 24%.
READ ALSO: 10 Best Restaurant Stocks To Buy According to Analysts and 11 Best Fast Food Stocks To Invest In Right Now.
This has resulted in a shift in consumer preferences as Americans become more cautious about where they spend their money. A survey by Lending Tree in May 2024 has revealed that 78% of Americans now consider fast food, which is integral to American culture, a ‘luxury’, forcing them to reassess their spending habits. Around 72% of the respondents said that they prefer having fast food during discount hours because of surge pricing in restaurants.
Despite the headwinds, it is not all lost for the restaurant industry, which continues to remain resilient, driven by the common desire among Americans to dine out. A critical factor that keeps the market thriving is how well it adapts to changing consumer preferences and price sensitivities. Several notable restaurant chains have been offering value deals, new menus, and discounts to lure customers during the holiday season.
Restaurants are also increasingly adopting automation in their quest for operational efficiencies and cost savings in an industry with thin margins. While the initial investment in technology is substantial, restaurant owners are hopeful that these upfront expenditures will enhance customer experience, reduce labor costs, and even be a solution to the challenges associated with labor shortages.
Despite facing temporary challenges, restaurant stocks have maintained strong performance this year. A restaurant ETF issued by AdvisorShares had gained 32.10% year-to-date as of the close of day on November 29, outperforming the broader market by just under six percentage points. According to data from the U.S. Census Bureau, food services and drinking places in October saw a 4.3% increase in sales compared to the same period last year.
The downturn in inflation is also a positive indicator for the industry. Consumer prices have eased down from the peak of 9.1% in June 2022 to 2.6% in October 2024. Interest rate cuts are also expected to boost the restaurant industry, as the low cost of borrowing would allow owners to go ahead with their expansion plans and also encourage consumer spending.
A worker preparing freshly-baked food in the back of a restaurant at a franchise location.
Our Methodology
We sifted through screeners to identify restaurant stocks with a forward P/E ratio of under 16 as of the close of the day on November 25, 2025. From there, we selected the 8 stocks with the highest number of hedge fund investors, based on Insider Monkey’s database of over 900 prominent hedge funds as of Q3 2024. The 8 cheap restaurant stocks have been ranked in ascending order of the number of hedge funds holding stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
El Pollo Loco Holdings, Inc. (NASDAQ:LOCO)
Forward Price to Earnings Ratio: 15.37
Number of Hedge Fund Holders: 13
El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) is a restaurant chain in the United States, specializing in food that integrates the culinary traditions of Mexico with the lifestyle of Los Angeles. It is known for serving fire-grilling citrus-marinated chicken. According to CNBC, the company operates around 495 restaurants, of which 172 are company-operated, while 323 are franchised restaurants.
It is among the cheap restaurant stocks to buy according to hedge funds. The company’s share price has lost around 6.5% of its value over the last three months and has underperformed against other major players in the industry. The dip in share value can be attributed to a decline in customer traffic and the broader economic challenges that have made consumers price-sensitive and cautious about their spending patterns.
Realizing that customers are looking for value, El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) has started offering aggressive value deals, such as the Taco Tuesday promotion, which offers two tacos for $5 every Tuesday. The restaurant chain has also announced the addition of the Original Pollo Bowl to its $5 offerings.
On October 31, El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) announced financial results for Q3 2024. Revenue for the quarter was posted at $120.4 million, close to last year’s figure during the same period. Company-operated restaurant revenue decreased by 1.5%, driven by a dip in revenue from the re-franchising of 19 company-operated restaurants to existing franchisees in prior quarters. Franchise revenue surged 10.5%, fueled by a 2.7% increase in franchise-comparable restaurant sales.
The company is also making progress in its cost-saving initiatives through a team dedicated to enhancing labor productivity and controlling expenses. These measures are likely to help El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) approach margins of around 18% next year.
The restaurant chain also has a robust development roadmap in place, with plans to open at least ten new locations in 2025. According to Insider Monkey’s database for Q3 2024, 13 hedge funds held investments in the company.
Overall, LOCO ranks 7th on our list of cheap restaurant stocks to buy according to hedge funds. While we acknowledge the potential of restaurant companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than LOCO 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 is originally published at Insider Monkey.