3 Best Restaurant Stocks to Buy Now
The restaurant industry was hit hard during the pandemic. But unlike other sectors that are back in action, many restaurants still face closed dining rooms and ongoing uncertainty. Many independent eateries were completely devastated over the past year, and while some of that business could ultimately go to bigger chains, even the big brand names are still working their way back to the to the top. But not all the news is bad. Starbucks (NASDAQ:SBUX), Texas Roadhouse (NASDAQ:TXRH), and Domino’s Pizza (NYSE:DPZ) are all companies that will thrive after the pandemic and are top buys going into 2021.
Serving up when the economy’s down
Starbucks got absolutely crushed when the pandemic started as its core customer base began to work from home and dining rooms were shut down. But America’s largest coffee chain was well positioned the handle the downturn with cash on hand and innovative solutions to keep the coffee flowing.
Comparable sales declined 40% and the company reported a loss in the fiscal third quarter of 2020 that ended June 28, but Starbucks quickly met changing consumer behavior with an accelerated rollout of curbside pickup and new locations in suburban areas. Mobile order and pickup remained strong, and comparable sales improved to a 9% decline in the U.S. and a 3% decline in China in the fiscal fourth quarter that ended Sept. 27. This improvement continued into the fiscal first quarter of 2021, and total comps were as high as a 3% decline in October.
Management is expecting a full comparable sales recovery in China by the end of the first quarter of 2021 (ended Dec. 29). and a significant rebound in fiscal year (FY) 2021, leading to outsized growth in FY 2022. That’s quite a while to wait in the investing world, where Starbucks’ stock ended 2020 up 17% despite the decreases, trading at 130 times trailing-12-month earnings. But investors are confident in the company’s recovery and future growth. CFO Pat Grismer said management is aiming for an ambitious 55,000 stores worldwide by fiscal year 2030, up from the current 33,000, and potentially outpacing McDonalds’ 36,000 stores.
CEO Kevin Johnson said in a statement, “We are focused on growing category share and believe Starbucks is better positioned than ever for continued success.”
Getting back to sizzling sales
Texas Roadhouse had the largest stock price increase on this list, gaining 32% in 2020. Although comparable sales were down 6.3% in the third quarter ended Sept. 29, they were positive again in October.
The steak chain offered all of the necessary digital options to stay in the game, including mobile order, curbside pickup, and digital places in line for takeout. It launched family packs and ready-to-cook steak packages for alternative ways to enjoy the Texas Roadhouse experience, and it rolled out an online butcher shop in November. It remains in a solid cash position and issued a 1% price increase in menu items to widen margins as sales tanked.
What’s most exciting about Texas Roadhouse is its future potential. The company operates 620 stores under several different labels and opened 20 new stores in 2020. It typically opens 30 locations annually, and management expects to get back to that in 2021. Combined with consistent single-digit comps, the company has a long future ahead of it with solid prospects for continued growth.
Delivering America’s pizza
Domino’s was one of the winners of COVID-19 as people stayed home and doubled up on pizza ordering. It’s the largest pizza company in the world, with over 6,000 U.S. locations and over 11,000 international locations.
The pizza chain has posted 38 consecutive quarters of positive U.S. comps and 107 consecutive quarters of positive international comps, and it has 17% of the international fast-food pizza market share.
Delivery accounts for 55% of Domino’s’ business, which is why it excelled during the pandemic. In the third quarter ended Sept. 6, sales grew 15%.
It was poised to make the most of lockdowns with its digital channels, which account for 70% of total sales. Aside from its consistent comparable sales, it has opened more than 1,000 stores annually over the past few years and plans to have 25,000 stores by 2025.
Domino’s stock gained 30% in 2020 and is the cheapest stock on this list, trading at only 32 times trailing trailing-12-month earnings. But it has tremendous upside.