Restaurants were hit hard by the one-two punch of high inflation and interest rates. The former caused chains to raise their prices, deterring customers from visiting. And the latter raised their borrowing costs, making it more expensive to operate.
According to the market researchers at Circana, although restaurant traffic grew 1% last year from 2022, it remains down 8% from pre-pandemic levels. However, total dollars spent is up 12% from then, suggesting rising prices are playing a role in rising sales.
The National Restaurant Association says 2024 is shaping up a little differently. Its Restaurant Performance Index declined 0.4% in April (the latest data available) and was down to 98.8, the lowest level since the pandemic. Fewer than 40% of operators think their sales will be higher in six months, and only 10% see the economy improving.
Yet, the twin pressures don’t hit the same everywhere. Some restaurant chains are thriving. Below are three restaurant stocks to buy now. They withstood the rigors of the pandemic and thrived in the environment that followed. More importantly, each offers the prospect of additional growth to come.
Dutch Bros (BROS)
Shares of drive-thru coffee shop Dutch Bros (NYSE:BROS) are up 8% since going public in September 2021. But it’s not a new startup. The java joint has been in business since 1992 and has perfected its growth strategy.
The company is in expansion mode, opening 45 new locations in the first quarter. It markets the 11th consecutive quarter where it opened 30 or more stores. Dutch Bros plans to open as many as 165 locations this year and recently moved into its 17th state. That leaves it with significant room for additional expansion but right now is focusing on its “fortressing” strategy.
Fortressing is a term popularized by Domino’s (NYSE:DPZ) and consists of flooding a market with new stores to build mindshare with consumers while lowering marketing costs. Although individual stores may see lower sales than they otherwise would, total revenue to the company rapidly increases.
But Dutch Bros is seeing strong growth at all of its coffee shops, enjoying 10% increases in same-shop sales. In fact, they outweighed the significant investments the chain made in labor costs.
BROS stock is up 25% in 2024. With Wall Street forecasting, the coffee slinger will grow earnings at a better-than-25% compounded annual rate for the next five years. Look for Dutch Bros to perk up your portfolio.
Brinker International (EAT)
Chili’s and Maggiano’s Little Italy owner Brinker International (NYSE:EAT) is a surprise pre- and post-pandemic star. EAT stock is up 22% over the last three years but 79% higher over the last five. Although the restaurant operator is seeing sales rise across the board, its Tex-Mex food chain Chili’s is the biggest moneymaker for the company.
Fiscal third-quarter sales for the brand rose 3.8% to $988 million, representing 89% of total revenue. The figures also include Brinker International’s virtual kitchen, It’s Just Wings. Maggiano’s had a less than 1% bump in sales to $120.5, or 11% of the total. EAT owns, operates or franchises more than 1,600 restaurants across the U.S. and 27 countries.
Also, the restaurant operator has been able to grow sales and traffic ahead of the industry through a combination of menu innovation and value. For example, it added a new half-pounded burger called The Big Smasher that was offered for a limited time at under $11 that highlighted its everyday value platform.
At the same time, Brinker International eliminated items like its Double Lunch Burger that removed a “skinny burger” stock keeping unit (SKU) from the menu. Offering customers a thicker single burger is a better option for cash-strapped consumers than two thin burgers.
Brinker International stock is up 62% so far this year. Although shares are not offered at a deep discount since they trade at 20 times free cash flow, they are still reasonable. And, EAT goes for a reasonable 15 times next year’s earnings estimates and just a fraction of its sales.
Chipotle Mexican Grill (CMG)
In that same vein of good food at a great price, Chipotle Mexican Grill (NYSE:CMG) is the third restaurant stock to buy now. The fast-casual chain has been a rocket and shows no signs of letting up.
Shares are up 47% in 2024, have more than doubled over the past three years and stand 358% higher than where they were five years ago. Although CMG currently trades hands for more than $3,400 a share, the Mexican food chain will be effecting a 50-for-1 stock split. That will promise to position the stock at a more attainable $68 a share, unless it climbs higher.
There is a good reason to bet it will. Sales rose 14% in the first quarter to $2.7 billion on a 7% jump in comparable restaurant sales. Operating margins widened to 16.3% from 15.5% a year ago. Chipotle Mexican Grill’s restaurant-level operating margin expanded by 190 basis points to 27.5%.
Moreover, Wall Street forecasts it will keep growing earnings at 22% a year long-term as price, value and the trend in favor of Mexican food marches forward. That suggests this is a restaurant stock to buy now for your portfolio.
On the date of publication, Rich Duprey did not hold (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.