The restaurant industry is embracing technology to improve customer experiences, lower labor costs, and boost profits, thereby increasing efficiency. Therefore, quality restaurant stocks Domino’s Pizza Group plc (DPUKY), Nathan’s Famous, Inc. (NATH), and Rave Restaurant Group, Inc. (RAVE) could be wise additions to your portfolio now.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the restaurant industry.
AI is revolutionizing the restaurant industry by enhancing customer interactions and operational efficiencies. AI in the global food and beverage industry, valued at 9.68 billion, is projected to reach $49 billion in five years, registering a 38.3% CAGR.
Moreover, the global fast-food sector should witness steady growth amid rising consumer spending power, rapid globalization, industrialization, and urbanization. The global fast-casual restaurant market size is estimated to expand at a CAGR of 8.3% to $293.80 million by 2030.
In addition, the U.S. full-service restaurant market is predicted to reach $554.12 billion by 2029, expanding at an 11.3% CAGR. Investors’ interest in restaurant stocks is evident from the AdvisorShares Restaurant ETF’s (EATZ) 28.9% returns over the past six months.
Given the industry’s growth prospects, it’s time to examine the fundamentals of the three stocks to buy in the Restaurants industry, starting with the third in line.
Stock #3: Domino’s Pizza Group plc (DPUKY)
Headquartered in Milton Keynes, the United Kingdom, DPUKY owns, operates, and franchises Domino’s Pizza stores. It operates stores in the United Kingdom and the Republic of Ireland, as well as leases its stores.
DPUKY’s trailing-12-month net income margin of 16.92% is 260.9% higher than the 4.69% industry average. Its trailing-12-month levered FCF margin of 15.48% is 182.1% higher than the 5.49% industry average. Also, its 18.04% trailing-12-month Return on Total Capital is 197.6% higher than the 6.06% industry average.
For the year ended December 31, 2023, DPUKY’s underlying revenue and underlying gross profit increased 13.2% and 15.6% from the prior-year period to £679.80 million ($858.73 million) and £316.20 million ($399.43 million), respectively.
For the same period, underlying profit and underlying earnings per share stood at £75.70 million ($95.62 million) and 18.40 pence, respectively. Moreover, its underlying EBITDA stood at £138.10 million ($174.45 million), up 6.1% from the year-ago period.
Street expects DPUKY’s revenue for the year ending December 31, 2024, to increase 3% year-over-year to $895.36 million. Over the past year, the stock has gained 34.8% to close the last trading session at $9.26.
DPUKY's POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
DPUKY has an A grade for Stability and a B for Quality. Within the Restaurants industry, it is ranked #3 out of 42 stocks. To see DPUKY's additional ratings for Growth, Value, Momentum, and Sentiment, click here.
Stock #2: Nathan’s Famous, Inc. (NATH)
NATH is a licensor, wholesaler, and retailer of Nathans brand products, notably Nathans Beef Hot Dogs. The company’s segments include Branded Product Program; Product licensing; and Restaurant operations. Its products are available in approximately 79,000 locations.
NATH’s trailing-12-month EBIT margin of 23.44% is 207.3% higher than the industry average of 7.63%. Its trailing-12-month asset turnover ratio of 2.20x is 119.9% higher than the industry average of 1x. Its 24.31% trailing-12-month EBITDA margin is 123.9% higher than the 10.88% industry average.
During the fiscal third quarter that ended December 24, 2023, NATH’s total revenues increased 3.3% year-over-year to $28.89 million. Its income from operations came in at $5.14 million. Moreover, the company’s net income and income per share stood at $2.61 million and $0.64 for the quarter, respectively.
Shares of NATH have gained marginally over the past month to close the last trading session at $69.11.
NATH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #2 in the same industry. It has an A grade for Quality and a B for Sentiment. Click here to see NATH's additional ratings for Growth, Value, Momentum, and Stability.
Stock #1: Rave Restaurant Group, Inc. (RAVE)
RAVE operates and franchises pizza buffet, delivery/carry-out (delco), and express restaurants under the Pizza Inn and Pie Five trademarks in the United States and internationally. The company operates through three segments: Pizza Inn Franchising; Pie Five Franchising; and Company-Owned Restaurants.
RAVE’s trailing-12-month gross profit margin of 67.20% is 87.1% higher than the industry average of 35.91%. Its trailing-12-month levered FCF margin of 16.14% is 194.2% higher than the 5.49% industry average. Also, its trailing-12-month Return on Total Assets of 13.40% is 209.4% higher than the industry average of 4.33%.
During the second quarter, which ended December 24, 2023, RAVE’s revenues came in at $2.79 million. The company’s net income and net income per share rose 58.9% and 100% from a year-ago quarter to $553,000 and $0.04, respectively. Also, its adjusted EBITDA stood at $582,000.
Analysts expect RAVE’s EPS to grow 10% per annum for the next five years. RAVE shares have gained 45.1% over the past year to close the last trading session at $2.09.
It’s no surprise that RAVE has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Quality and a B for Sentiment. It is ranked first in the Restaurants industry.
Beyond what is stated above, we’ve also rated RAVE for Growth, Value, Momentum, and Stability. Get all RAVE ratings here.
What To Do Next?
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DPUKY shares were trading at $9.26 per share on Wednesday afternoon, down $0.39 (-4.04%). Year-to-date, DPUKY has declined -4.04%, versus a 9.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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