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OPINIONFinancing

Despite the pandemic, restaurant stocks went up last year

Publicly traded chains had a surprisingly positive year in 2020, thanks almost entirely to limited-service concepts, says RB’s The Bottom Line.
Photograph: Shutterstock

The Bottom Line

Restaurant company stocked performed well in 2020, especially when you consider how bad things really were in March.

They underperformed the overall stock market, which is exactly what you’d expect, and there was a massive gap in performance based on whether a company used wait staff.

Publicly traded restaurant chains had a median price increase of just over 4% in 2020, according to data from the financial services site Sentieo.

That is well below the S&P 500, which soared more than 16% last year. But it’s also far better than it was back in March when restaurant stock valuations plummeted during the depths of the coronavirus pandemic. Anyone who would have predicted that restaurants would finish the year in positive territory would have been laughed out of their virtual meeting.

The industry’s recovery on Wall Street is indicative of its overall recovery—sales improved throughout 2020, led by takeout and delivery—and most chains avoided the sort of financial calamity many of us feared last spring.

Unsurprisingly, investors were particularly choosy. Limited-service chains’ median stock price growth last year was 17%, which bested the S&P 500 index for the year. Stock investors sensed a future in which takeout remains a dominant force in the industry even after the pandemic subsides.

Full-service chains, on the other hand, did not perform as well.

Limited-service chains outperform casual diners

Source: Sentieo

Chains with wait staff saw a median stock price decrease of 16% last year.

The difference is reflected in the chains’ overall performance. On balance, fast-food and fast-casual chains performed much better than their full-service counterparts. They went into the pandemic with a healthy dose of takeout options, from drive-thrus to strong delivery partnerships. Casual diners, on the other hand, are far more reliant on the dine-in service that was hammered last year.

That said, there were a couple of notable outliers. For that, take a look at the best performing companies last year.

2020’s biggest winners

Source: Sentieo

First, it’s worth noting that the top-performing restaurant stock last year was actually Fat Brands, the owner of Fatburger whose stock rose 184% largely on an end-of-year merger with its CEO’s investment fund.

The fifth company on that ranking, Texas Roadhouse, performed far better than expected despite going into the pandemic with a very limited takeout strategy and a vow never to use third-party delivery—a vow it kept despite the coronavirus.

The sixth chain, by the way, is Brinker International, the owner of Chili’s whose stock rose 35% last year thanks largely to the performance of It’s Just Wings, a virtual brand run out of the company’s existing restaurants.

Nos. 7 and 8, by the way, are Papa John’s (up 34%) and Domino’s (up 31%). They joined Wingstop as the pandemic’s biggest winners, at least from a sales standpoint. Wingstop’s sales have gone so well that it’s spawned dozens of virtual brand competitors such as the aforementioned Brinker concept.

The surprising performer among publicly traded chains was Shake Shack, which had a strong year on Wall Street despite its struggles—its focus on urban areas has been a negative. But the company received a funding injection and has been aggressively pushing toward drive-thrus.

2020’s biggest losers

Source: Sentieo

The weakest performing companies have been unsurprising, led by the perpetually struggling Rave, which owns Pizza Inn and the shrinking Pie Five. Among larger-cap concepts, Red Robin has lost favor with investors.

Dine Brands also lost favor thanks to the performance of its two concepts, Applebee’s and IHOP. The company has rolled out its own virtual wing brand more slowly than rival Brinker while family dining chains like IHOP and Denny’s have had a tough time during the pandemic.

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