Over the past year, the restaurant industry has faced several operational challenges to which, in response, it focused on strengthening its delivery services to stay afloat amid pandemic-led restrictions. However, with the fast-paced vaccination rollout and the subsequent easing of the social distancing mandates, restaurants have since the beginning of this year been witnessing rising foot traffic.
As per a recent report by the National Restaurant Association, food and beverage sales in the restaurant and foodservice industry are projected to total $789 billion in 2021, up 19.7% from 2020.
Given the industry’s solid growth prospects, we think fundamentally sound stocks in this space Ruth's Hospitality Group, Inc. (RUTH) and The ONE Group Hospitality, Inc. (STKS) could be solid bets now. Piper Sandler analyst Nicole Miller Regan has upgraded RUTH to Overweight from Neutral with a $28 price target. Regan noted that the company has "balanced consumer positioning across social, local business and special occasions." Also, Regan upgraded STKS to Overweight from Neutral with a $17 price target. The analyst sees the company’s potential for multiple expansion and believes it can leverage accelerated global development opportunities.
Ruth's Hospitality Group, Inc. (RUTH)
RUTH, which is headquartered in Winter Park, Fla., develops, operates, and franchises fine dining restaurants under the Ruth's Chris Steak House name. The company's restaurants offer food and beverage to special occasion diners and frequent customers, as well as business clientele.
On August 18, the company opened its Steak House at Soaring Eagle Resort and Casino in Mount Pleasant, Michigan. The restaurant will be the signature steakhouse for the Resort and marks its fourth location in Michigan. “We look forward to serving those enjoying a visit to the Soaring Eagle Resort and Casino,” said Cheryl Henry, President and Chief Executive Officer of Ruth’s Hospitality Group, Inc. As social distancing mandates have eased, RUTH should be able to serve more customers and thereby improve its financial profile.
For its fiscal second quarter, ended June 27, RUTH’s total revenues increased 290.3% year-over-year to $110.91 million. Its operating income stood at $16.26 million, up 167.6% from the same period last year. Its net income grew 170.5% from its year-ago value to $12.41 million. The company’s EPS increased 161% year-over-year to $0.36.
A $123.69 million consensus revenue estimate for its fiscal fourth quarter (ending December 2021) indicates a 59.9% increase year-over-year. The Street expects the company’s EPS to rise 1,033.3% to $0.34 in the next quarter.
RUTH has gained 97.9% in price over the past year to close its last trading session at $21.33. The stock has gained 20.3% year-to-date.
It is no surprise that RUTH has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
RUTH has a B grade for Growth, Value, Momentum, Sentiment, and Quality. Among the 46 stocks in the A-rated Restaurants industry, RUTH is ranked #3.
Click here to view the RUTH rating for Stability and additional details.
The ONE Group Hospitality, Inc. (STKS)
STKS develops, owns, operates, manages, and licenses restaurants and lounges worldwide. The Denver, Colo.-based company operates through STK, Kona Grill, and ONE Hospitality segments.
On July 23, STKS opened its newest STK Steakhouse in the Bellevue Collection shopping center. In addition, the company also opened STK locations in Scottsdale, AZ, Los Cabos Airport, Mexico, and London in 2021. These expansions reflect the company’s continued growth in the industry.
STKS’s total revenues increased 324.6% year-over-year to $70.76 million in its fiscal second quarter, ended June 30. Its operating income grew 246.8% from its year-ago value to $7.76 million, while its net income attributable to the company improved 581.8% year-over-year to $13.84 million. The company’s EPS increased 510% year-over-year to $0.41.
Analysts expect STKS’s revenues to increase 78.9% year-over-year to $70.77 million in the current quarter, ending September 2021. The $0.19 consensus EPS estimate for the current quarter indicates a 733.3% rise from the same period last year. STKS has a notable earnings surprise history as well; it beat the consensus EPS estimates in three out of the trailing four quarters. Shares of STKS have gained 478.6% in price over the past year and 199.5% year-to-date.
The company’s strong fundamentals are reflected in its POWR Ratings. STKS has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The stock has an A grade for Growth and Sentiment, and a B grade for Value and Momentum. It is ranked #13 in the same industry.
To see additional STKS ratings for Stability and Quality, click here.
RUTH shares were unchanged in premarket trading Monday. Year-to-date, RUTH has gained 20.30%, versus a 19.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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