The Next Starbucks? 7 Restaurants That Investors Shouldn’t Ignore

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The restaurant industry is known for its fierce competitiveness, but therein lies a golden opportunity for savvy investors. Starbucks (NASDAQ:SBUX), which arguably has been an industry bellwether for the longest time, is known for its strategic growth in the coffeehouse sector. Its focus on enhancing same-store sales and expanding store networks globally has been crucial in driving long-term growth for its business. However, in following its example, several restaurant stocks, have found success and have positioned themselves as advantageously in their niche.

In recent years, the restaurants and mobile food services market has demonstrated steady growth, with projections indicating an increase from $2,973.9 billion in 2023 to $3,119.7 billion in 2024, at a compound annual growth rate (CAGR) of 4.9%. This growth is not just a testament to the sector’s resilience but also to its potential for future expansion. Therefore, investing in these resilient restaurant stocks offers a promising avenue to bolster one’s investment portfolio, ensuring it flourishes regardless of market fluctuations.

Dave & Buster’s Entertainment (PLAY)

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Dave & Buster’s (NASDAQ:PLAY), the acclaimed entertainment complex operator, saw its share price soar by 35% over the past year, eclipsing many pre-pandemic peers. This growth stems from resilient strategic financial management, notably the significant amendment of its credit agreement. Its savvy move effectively lowered the interest rate margin on its loans, saving over $5 million in annual cash interest. Such financial prudence boosts both its financial flexibility and shareholder value.

Additionally, PLAY’s latest earnings report showed it beat earnings-per-share expectations despite slightly missing revenue forecasts. The company isn’t settling, though. It projects an average annual revenue growth of 7.5% over the next three years. Subsequently, its 24.4% revenue growth far surpasses the sector’s median of 4.61% by 430.65%, highlighting its strong market position.

Bolstered by these financial and operational achievements, Dave & Buster’s has earned a ‘strong buy’ rating from Seeking Alpha analysts, reflecting confidence in its continued growth and operational efficiency.

Shake Shack (SHAK)

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Another one of the top restaurant stocks to consider is Shake Shack (NYSE:SHAK), the New York-based purveyor of iconic hamburgers, hot dogs, and shakes, which has seen its shares surge by 53.7% over the last five years and an impressive 40.4% in the past year alone. Embarking on 2024 with enthusiasm, SHAK has unveiled a mouthwatering limited-time menu that promises to tantalize every palate. This culinary innovation accompanies the introduction of three “Winter Classics” shakes, incorporating traditional winter tastes with the chain’s beloved frozen custard.

Moreover, SHAK is set to open its flagship Canadian store in Toronto, signaling a major leap in its global expansion efforts. Financially, Shake Shack continues to excel, posting a 21.2% year-over-year revenue increase to $276.21 million in its third quarter, with earnings-per-share topping expectations at 17 cents. Looking ahead, the company anticipates revenues of $280.2 million and earnings per share of one cent for the upcoming quarter, highlighting its robust financial health and the promising outlook for its delectable offerings.

Arcos Dorados (ARCO)

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Another one of the top restaurant stocks is Arcos Dorados (NYSE:ARCO), the globe’s premier McDonald’s (NYSE:MCD) franchisee headquartered in Uruguay, which presides over more than 2,300 eateries across Latin America. After weathering a series of downturns and a particularly harsh blow from the pandemic, ARCO’s stock has impressively rebounded, surging 48% over the past year.

Amidst its recovery, Arcos Dorados has been proactive in the investor sphere, participating in prestigious events like the Bradesco BBI Retail Days and the BTG Pactual Brazil CEO Conference 2024. These engagements underscore its commitment to maintaining a dynamic presence among investors.

Financially, ARCO is on a solid upward path, with its latest quarterly revenue reaching $1.1 billion, a 22% increase year-over-year and surpassing expectations by $36.6 million. Earnings-per-share also exceeded forecasts at 28 cents. The company’s aggressive expansion, aiming for 80 to 90 new locations in 2024, reflects its ambition and optimism for the future. Tipranks analysts assign ARCO a moderate buy rating with a 22.6% upside, highlighting its promising outlook.

Darden Restaurants (DRI)

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Darden Restaurants (NYSE:DRI), another one of the top restaurant stocks is the U.S.-based conglomerate behind beloved chains like Olive Garden, LongHorn Steakhouse, and Ruth’s Chris Steak House. It’s also witnessing a robust recovery, with its stock climbing 13.47% over the past year. This rebound shows the company’s strategic agility during the COVID-19 pandemic, which saw many of its outlets temporarily shuttered.

Moreover, DRI has announced plans to inaugurate 50 to 55 new restaurants, including a new Longhorn Steakhouse. This expansion underscores Darden’s commitment to broadening its reach and serving more customers, enhancing its footprint in the competitive restaurant market.

Furthermore, DRI’s latest financials show strong growth, with earnings-per-share of $1.76, beating forecasts by 4 cents and revenue climbing 9.68% year-over-year to $2.73 billion. The company predicts full-year sales at $11.5 billion and adjusted earnings-per-share of $8.75 to $8.90, topping the $8.77 consensus. TipRanks analysts assign a moderate buy rating, seeing a 5.8% upside, underlining Darden’s bright prospects.

Domino’s Pizza (DPZ)

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Domino’s Pizza (NYSE:DPZ) has skillfully navigated through industry hurdles, marking a 19.75% increase in its shares over the past year. This increase, coupled with a promising partnership with Uber (NYSE:UBER) through Uber Eats, underscores Domino’s commitment to driving delivery growth and enhancing customer convenience.

Moreover, DPZ saw a 5.1% uptick in retail sales growth, with a 0.9% increase in the U.S. market. This steadfast growth trajectory is further highlighted by the addition of 27 new U.S. stores, achieving a net growth rate of 1.8%.

Furthermore, DPZ is revamping its digital ordering with a website and app redesign aimed at simplifying and enhancing the user experience, set for a fourth-quarter 2024 launch. Partnering with Microsoft (NASDAQ:MSFT), it introduced an AI-driven personal pizza-ordering assistant, elevating customer service personalization. TipRanks analysts give DPZ a moderate buy rating, with a 3.10% upside potential, reflecting confidence in Domino’s strategic direction.

U.S. Foods Holding Corp. (USFD

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U.S. Foods Holding Corp. (NYSE:USFD) slices through the food service industry with aplomb, distributing culinary must-haves to its impressive clientele. With a snappy network of over 6,000 suppliers and around 70 distribution facilities, USFD ensures that everything from prime cuts to fresh produce reaches restaurants, hospitals, and more. Its logistical prowess has translated into a relatively impressive 2.1% year-over-year increase in net sales and a savory 17.14% uptick in adjusted EBITDA.

Moreover, its profitability has been impressive, with its EBITDA mushrooming by a whopping 47.57% year-over-year, dwarfing the sector’s 7.32% median. Furthermore, its revenue forecasts are just as appetizing, with an 8.20% growth rate nearly doubling the sector’s average. These numbers are telling, which is why it’s earned a moderate buy rating from Tiprank’s analysts, with them expecting a 12% upside in its stock from current levels.

Chiptole Mexican Grill (CMG)

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Chipotle Mexican Grill (NYSE:CMG) is redefining the fast-food landscape with its commitment to healthier options and sustainable practices, illustrated by a notable 64.19% stock increase over the past year. The introduction of an all-electric restaurant design underscores Chipotle’s dedication to energy efficiency and a 50% reduction in greenhouse gas emissions by 2030.

Furthermore, Chipotle’s strategic investments in Greenfield Robotics and Nitricity through the $50 million Cultivate Next venture fund highlight its push toward sustainable farming. Leveraging AI and robotics, Greenfield Robotics aims to revolutionize regenerative agriculture by minimizing herbicide usage and enhancing soil health.

Financially, CMG reported a robust revenue increase of 15.6% year-over-year to $2.52 billion and earnings-per-share of $10.36, surpassing expectations. The opening of 121 new restaurants and the anticipation of 285 to 315 new openings in 2024 reflect a strong growth trajectory. TipRanks analysts echo this optimism, giving CMG a moderate buy rating with a 3.65% upside.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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