Top Restaurant Stocks for Q1 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 rise due to the COVID-19 pandemic. Many restaurants remain closed to service while millions of consumers confined at home are reluctant to dine out at the ones that are open. 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 US Restaurants & Bars Index, has underperformed the broader market. The index has posted a 1-year trailing total return of 13.4% compared with the Russell 1000's total return of 22.2% as of December 8. Restaurants with successful delivery or takeout operations, however, have done particularly well during this period. That is reflected in the top stocks of the restaurant industry below.

Here are the top 3 restaurant stocks with best value, fastest growth, and most momentum. All statistics below are as of December 9.

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

• 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 the U.S. and Canada. In Q4 FY 2020 ended September 27, the company reported that net earnings rose sharply as system same-store sales increased by 12.2% year-over-year (YOY). A decline in restaurant traffic and higher costs for delivery fees and supplies due to COVID-19 continued to impact the business.
• El Pollo Loco Holdings Inc.: El Pollo Loco Holdings is a holding company operating a chain of fast food restaurants. El Pollo Loco restaurants offer chicken meals, bowls, salads, soups, rice, and similar offerings to customers throughout the U.S. In November, the company announced that it would extend its exclusive joint offer with delivery service Postmates to provide free delivery through the end of the year as part of its "However Long is Necessary" campaign.
• Yum! Brands Inc.: Yum! Brands is one of the largest fast food restaurant companies in the world, with more than 50,000 restaurants in 150 countries. The company is known for its franchise chains including Taco Bell, Pizza Hut, and KFC.

Fastest Growing Restaurant Stocks

These are the restaurant stocks with the highest YOY earnings per share (EPS) growth for the most recent quarter. Rising earnings show that a company’s business is growing and is generating more money that it can reinvest or return to shareholders.

Source: YCharts

• Cracker Barrel Old Country Store Inc.: Cracker Barrel Old Country Store operates a chain of restaurants serving a variety of dishes for breakfast, lunch, and dinner service. For Q1 FY 2021 ended October 30, the company reported a four-fold rise in net income to $170.7 million as total revenue fell 13.7% YOY amid continuing quarterly declines in same-store sales. The surge in net income was due primarily to a $217.7 million gain on a sale-leaseback transaction in which Cracker Barrel sold 62 properties.
• Jack in the Box Inc.: See above for company description.
• Yum China Holdings Inc.: Yum China Holdings is a restaurant company incorporated in the U.S. and headquartered in China. The company, which was spun off by Yum! Brands in 2016, operates thousands of restaurant locations across China.

Restaurant Stocks With the Most Momentum

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

Source: YCharts

• Chipotle Mexican Grill Inc.: Chipotle Mexican Grill operates a chain of fast-casual Mexican restaurants specializing in burritos, tacos, bowls, and similar dishes. The company has locations in the U.S., Canada, and parts of Europe. In November, Chipotle announced plans to open its first digital-only restaurant. The restaurant, located in Highland Falls, New York, provides pick-up and delivery service only and does not include a dining room or front service line. The company said that the new store model will allow Chipotle to enter more urban areas that wouldn't support a full-size restaurant and "allows for flexibility with future locations." Chipotle said company-wide digital sales tripled YOY in the most recent quarter as many consumers sheltered at home, rather than dining out, amid the COVID-19 pandemic.
• Wingstop Inc.: Wingstop operates a chain of restaurants specializing in chicken wings, sides, and related fast food items.
• Shake Shack Inc.: Shake Shack operates a chain of burger restaurants globally. The company focuses on classic American foods including burgers, hot dogs, chicken, fries, shakes, and similar offerings. For Q3 2020, total revenue decreased by 17.3% YOY as the chain posted a net loss of $6.1 million. While same-store sales continue to decline, they have improved sequentially every month since April, according to a late-October report.

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