In today's fast-paced world, consumers are frequently on the lookout for quick and convenient eating options. This assertion, along with benign early fall weather, may help to explain the uptick in September restaurant sales. Restaurant same-store sales increased by 1.2% in the final month of the third quarter, rounding out four months of consecutive growth. Moreover, the third quarter of 2018 was the first time in three years that all regions in the United States have posted positive sales growth.
Despite the positive sales numbers, some industry experts believe that restaurants are likely to see more moderate growth ahead due to a restraint on consumer spending caused by gradual wage growth, higher gas and utility prices, and rising interest rates. Investors who wish to navigate the risk and reward of investing in fast food restaurant stocks should look over these leading names in the space.
With a market capitalization of $140.69 billion, McDonald's is one of the world's largest and most recognized food franchises. The company, headquartered in Chicago, Illinois, operates roughly 37,000 restaurants as of November 2018. McDonald's Experience of the Future initiative, which includes implementing self-ordering kiosks and adding delivery options, such as partnering with Uber Eats, aims to position the company for sustainable long-term sales growth. As of Nov. 7, 2018, McDonald's stock has a year-to-date (YTD) return of 6.57% and offers a 2.57% dividend yield.
McDonald's share price broke out of a six-month trading range after the fast food company beat top and bottom line third quarter earnings estimates. The stock has continued with follow-through gains and made a YTD high of $182.86 on Nov. 6. McDonald's share price looks overbought in the short term, with the relative strength index (RSI) giving a reading above 70. Investors who wish to buy should look for an entry point between $167.5 and $172.5, where the stock should find horizontal line support from previous price action.
Yum! Brands, founded in 1997, operates and franchises a group of quick-service restaurants that include KFC, Pizza Hut and Taco Bell. Analysts project 2% same-store sales growth for the company in 2019, which implies 6% sales growth across its franchise system. Taco Bell was Yum! Brands' star performer in the third quarter, with same-store sales rising 5% – exceeding the Street's expectation of a 3% rise. Trading at $87.90, with a market cap of $27.51 billion and paying a 1.65% dividend yield, Yum! Brands stock has returned 8.5% YTD as of Nov. 6, 2018.
The company's shares traded within a 12-point trading range between January and August before breaking to the upside in September. The stock retraced in October to test the top of the previous trading range, which is now acting as support, at the $86 level – traders could consider buying the stock on pullbacks to this area.
Headquartered in Denver, Colorado, Chipotle operates the well-known and popular Chipotle Mexican Grill restaurants. The company, with a $13.18 billion market cap, has approximately 2,400 restaurants within the United States and 40 locations internationally. Chipotle expects to make $4.8 billion in sales during 2018 and has three-year revenue growth of 2.9%. As of Nov. 6, 2018, Chipotle stock has a mouthwatering YTD return of 64.05%, outperforming the restaurant industry average gain over the same period by a whopping 53.26%.
Chipotle shares gapped up over 14% on April 26, after the company reported blowout first quarter earnings. The stock continued to trend higher until late August before retracing over the next two and a half months to test the 200-day simple moving average (SMA). Chipotle's share price has since rallied and now trades above 50-day SMA. Those wanting to buy this top performing stock should seek an entry price at the $420 level – an area where the price should find support from an uptrend line that dates back to early February and the 200-day SMA.