Top Restaurant Stocks for Q4 2021

The restaurant industry ranges from local mom-and-pop eateries to national and international chains. The industry is notoriously difficult for business owners, with about 60% of new restaurants failing within their first year. One reason for this is that restaurant spending tends to be heavily discretionary, fluctuating dramatically with the broader economy. The failure rate of restaurants may accelerate due to the COVID-19 pandemic. The Delta variant has prompted many restaurants to re-close dining rooms after opening them to customers earlier in the year. Some of the best-known publicly traded restaurants include McDonald's Corp. (MCD) and Chipotle Mexican Grill Inc. (CMG).

The restaurant industry, represented by the Dow Jones U.S. Restaurants & Bars Index, has underperformed the broader market with a total return of 27.6% over the past 12 months, as of Sept. 10, 2021. By comparison, the Russell 1000's total return over the same period is 37.1%. All statistics in the tables below are as of Sept. 10, 2021.

Here are the top 3 restaurant stocks with best value, fastest growth, and most momentum.

Best Value Restaurant Stocks

These are the restaurant stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

Source: YCharts

• Cracker Barrel Old Country Store Inc.: Cracker Barrel Old Country Store operates a chain of more than 660 restaurants in 45 U.S. states. Its atmosphere and food have a Southern country theme.
• Jack in the Box Inc.: Jack in the Box operates and franchises restaurants of the same name. The chain serves hamburgers, sandwiches, salads, Mexican food, and related items, and operates in the U.S. and Canada. For Q3 FY 2021, ended July 4, 2021, Jack in the Box reported a 23.0% year-over-year (YOY) incease in net earnings on 11.2% YOY revenue growth. The company also saw growth in same store sales.
• Del Taco Restaurants Inc.: Del Taco Restaurants operates and franchises restaurants selling both Mexican-inspired and classic American dishes. The company offers tacos, burritos, cheeseburgers, fries, and milkshakes, among other items.

Fastest Growing Restaurant Stocks

These are the top restaurant stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one or the other figure unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of over 2,500% were excluded as outliers.

Source: YCharts

• Chipotle Mexican Grill Inc.: Chipotle Mexican Grill operates a chain of fast-casual Mexican restaurants. The company serves items including burritos, burrito bowls, tacos, and salads, made using fresh ingredients. For Q2 2021, net income surged by nearly 23-fold on strong growth in revenue, comparable restaurant sales, and digital sales.
• Dave & Buster's Entertainment Inc.: Dave & Buster's Entertainment owns and operates locations across North America that combine dining and entertainment for both adults and children, including games and video arcades. The company reported Q2 FY 2021 results for the quarter ended Aug. 1 on Sept. 9, 2021. Dave & Buster's reported $52.8 million in net income for the quarter compared with net loss for Q2 FY 2020, as well as record revenue of $377.6 million. The company cited its new menu, marketing, and technology investments as key drivers of the strong performance. Dave & Buster's does not have a listing under EPS Growth in the table above because its EPS went from negative to positive during the period.
• Luckin Coffee Inc.: Luckin Coffee is a China-based coffee chain with thousands of locations across China. Luckin had negative EPS for the most recent quarter, making an EPS growth calculation impossible.

Restaurant Stocks With the Most Momentum

These are the restaurant stocks that had the highest total return over the last 12 months.

Source: YCharts

• Luckin Coffee Inc.: See company description above.
• The One Group Hospitality Inc.: The ONE Group Hospitality operates upscale restaurants and lounges in the U.S. and Europe. The company also provides hospitality management services to hotels and casinos. The ONE Group reported $13.8 million in net income attributable to the company for Q2 2021, versus a net loss for the prior-year quarter, as well as record quarterly revenue of $70.8 million.
• Dave & Buster's Entertainment Inc.: See company description above.

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