The DOW recently hit 20,000, unemployment figures have reached pre-recession numbers, and the Fed has greenlighted a new interest rate hike cycle. All of this news seems to underscore the overall health of the U.S. economy, and that should mean consumers have more cash to go out and spend at discretionary places like restaurants.
And yet, one of the most disappointing industries as of late has been the Retail Restaurant business. With more and more folks opting for the latest trends like fast-casual healthy eating and meal delivery services, the traditional restaurant chains have been left behind.
In fact, over the last 12 months, the Retail Restaurant industry has returned about 4.5% versus an S&P 500 that has gained nearly 12%. Nevertheless, good restaurant stocks are still out there, and investors interested in the industry should look for companies that are continuing to grow by offering a more unique experience.
Check out these three restaurant stocks poised to outperform their industry peers:
1. El Pollo Loco (LOCO)
Although this company's earnings estimates point to difficult year-over-year comparisons, our consensus revenue estimates predict continued sales growth in the current quarter and fiscal year. Furthermore, the stock holds an "A" grade for Value, boosted by its P/E ratio of 18.36 and PEG ratio of 1.22, both of which significantly outperform the industry average.
LOCO also has "B" grades for Growth and Momentum; these solid Style Scores have helped it gain an overall VGM grade of "A." El Pollo Loco restaurants are another in the growing number of popular Tex-Mex chains, and this brand seems to attract eaters by throwing in on-the-bone chicken into that mix too.
2. Wingstop (WING)
Based on our consensus estimates for the quarter ended in December, Wingstop is expected to post EPS growth of 5.5% on sales growth of 21.2%. The company's Zacks Consensus Estimate for earnings has gained a penny over the past 60 days, and a combination of this earnings-related data has helped it earn a Zacks Rank #1 (Strong Buy).
This chicken wing brand is also riding a solid earnings streak right now, beating estimates by an average of 12% over the trailing four quarters. While wings certainly are not a new concept, Wingstop benefits from having a unique combination of sit-down, take-out, and delivery options; personally, I am also intrigued by celebrity investor and rapper Rick Ross.
3. Dave & Buster's (PLAY)
Dave & Buster's has been one of the most talked about stocks on the market over the past year or so, as shares have gained more than 55% over the past 52 weeks. Despite the struggles of other restaurants, Dave & Buster's has posted strong growth and impressive earnings surprises.
For the current quarter, our consensus estimates reflect EPS growth of nearly 10% on sales growth of about 15%. The stock is a Zacks Rank #1 (Strong Buy) and we have already seen six positive estimate revisions for its next-year earnings. Dave & Buster's has thrived as more eaters have become interested in its "dine and play" experience that offers casual food and arcade gaming all under one roof.
Here at Zacks, we often remind investors that the best stocks will be found in the best industries. However, that does not always mean that struggling industries have no good stocks. With these retail restaurants, we have found a few picks that are sticking out because of their solid fundamental metrics. While we can speculate as to why these companies are succeeding, there is no denying the strong data we are seeing.
Long-Term Buys You Won't See in the News
The stocks you see in today's headlines may not be in the news tomorrow or next week. If you're looking for profitable long-term investments, you may be interested to see what Zacks Research is recommending to our private members. These moves have double and triple-digit profit potential. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this exclusive information? Click here>>
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.