Despite the weak economy, a number of restaurant stocks are having a good year so far in 2011. Six operations are up double-digits as of October 20. BJ's Restaurants (Nasdaq:BJRI), both a restaurant and a brewery, was the fourth-best performer year-to-date at 37.9% and showing no signs of slowing down. While it might be expensive, I'll explain why it's worth owning.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Six Best Performing Restaurant Stocks - YTD October 20, 2011:

Company YTD Performance Market Cap
Domino\'s Pizza (NYSE:DPZ) 91.5% $1.86B
Chipotle Mexican Grill (NYSE:CMG) 45.0% $9.65B
Buffalo Wild Wings (Nasdaq:BWLD) 41.8% $1.14B
BJ\'s Restaurants (Nasdaq:BJRI) 37.9% $1.35B
McDonald\'s (NYSE:MCD) 18.6% $91.84B
Papa John\'s International (Nasdaq:PZZA) 17.4% $823.03M

Stock Performance
With the exception of Chipotle, I can't think of a restaurant stock that's been hotter than BJ's Restaurants the past three years. It's up about 70% annually, which compares very favorably with the former McDonald's investment. Over 10 years, its annual total return is 26.4% - double that of the restaurant industry as a whole and almost eight times the S&P 500. The question is whether it can keep it up. I don't see why not. It's still expanding, and its concept continues to draw the customers. Even in the tough times in 2008 and 2009, it's managed to outshine its competitors, delivering comparable restaurant sales declines of only 0.3% and 0.8%, respectively. In 2010, it bounced back nicely with 5.6% comps and in the first three quarters of 2011, its delivered comps of 7.8% in Q1, 7.3% in Q2 and 6.5% in Q3. Its comparables are at historic levels. (Get a better taste of this industry by reading How To Analyze Restaurant Stocks.)

BJ's Restaurants released third quarter earnings October 20 and they were good. Revenues grew 17.6% to $151 million with non-GAAP diluted earnings per share of 24 cents, an increase of 20%. It ended the quarter with $40.3 million in cash, zero debt and book value per share of $10.91. For the first nine months of the year, revenues grew 17.6% to $448 million with diluted earnings per share of 75 cents. While the company did not provide guidance, analysts expect revenues of $614 million for all of 2011 with diluted EPS of $1.09. Since 2005, its revenues and operating income have grown at compound annual rates of 24 and 22%, respectively. If BJ's stops growing, it will be because Americans have stopped drinking beer and for no other reason.

At the end of the third quarter, it had 112 restaurants open with about half in California and the rest scattered in 13 other states. Its long-term plan is to get to 300 restaurants, opening approximately 12 or 13 every year. Near-term expansion will see one-third of the openings in its home state of California, another third in Western states outside California and the remaining third will be in Florida and/or new markets. Most of its "Brewhouse" format are 7,000 to 10,000-square feet and generate upwards of $5.5 million (when mature) in two to five years with a "four-wall" contribution (operating cash flow) of up to 20%. Given the average store costs $3.8 million to build, a performing restaurant will pay for itself in three to five years. In the meantime, it has plenty of cash to keep growing. (For more insight into expansion, read Is Growth Always A Good Thing?)

The Bottom Line
BJ's Restaurants is one expensive stock. It's also a best-of-breed restaurant concept, and people will always pay for quality.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Brokers

    The Next Industries Bound to be Uberized

    As more startups succeed with the sharing economy business model, investors seek out businesses poised to disrupt their industries like Uber.
  5. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  6. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  7. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  8. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  9. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  10. Stock Analysis

    Has Urban Outfitters Lost its Way? (URBN)

    Urban Outfitters just made a bold move. Will it pay off?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center