OPINIONFinancing

Investors pour money into restaurants

Stocks are up more than 12% on average as the industry shows signs of life, says RB’s The Bottom Line.
Jonathan Maze

The Bottom Line

Investors are back aboard the restaurant bandwagon.

Stock prices for publicly traded restaurant companies have increased more than 12% on average so far this year, after they largely thrived this spring.

By comparison, the S&P 500 index is up just 1.4% so far this year.

The stock performance is likely a reflection of two things: surprising performance by many of the companies on Wall Street and a belief that industry sales are beginning to recover.

Restaurant sales have shown some signs of life thus far, according to various sales indexes. Consumers, who are working and are seeing some wage gains, have been eating out a bit more often—though sales seemed to slow in May, according to both the Black Box Index and Technomic.

And many companies have surprised investors with their sales or profit numbers. Most recently, for instance, Olive Garden owner Darden Restaurants reported strong sales in its most recent quarter, sending that stock above $100 a share for the first time ever.

Darden stock is up more than 11% this year.

Some companies have regained favor with investors after losing it in previous years. That’s particularly true among some of the better-performing companies.

Noodles & Co., for instance, has seen its stock more than double so far this year, after steadily declining in the previous four years following its 2013 initial public offering.

Similarly, improving sales have helped BJ’s Restaurants win favor with investors and is up nearly 65%. Shake Shack is up more than 50% this year. And Chipotle Mexican Grill is up nearly 50%, due largely to enthusiasm for its new CEO, Brian Niccol.

But some already strong chains have also done well. Domino’s Pizza stock, which in 2009 was trading under $5 a share, is nearing $300 after rising 50% in the first half of 2018.

And Wingstop, routinely one of the best-performing restaurant stocks on Wall Street, continues to perform consistently well: Its stock is up by a third this year.

On the other hand, a few chains have lost favor. Zoes Kitchen stock is down more than 40% this year after reporting losses in the first quarter.

Del Frisco’s Restaurant Group’s acquisition of the owner of Barcelona and Bartaco didn’t help its stock, which is down more than 17% this year.

Starbucks, meanwhile, has struggled this year. Its stock is below $50 a share for the first time in years after losing nearly 15% as investors worry about the chain’s weak traffic.

In addition, two companies that went public through Regulation A+ mini IPOs have not done well to generate investor enthusiasm in their short times on Wall Street. Fat Brands is down 12% this year, and iPic Entertainment is down 32% since its stock started publicly trading in February.

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