Even though labor shortages and ongoing supply chain disruptions remain significant hurdles for several restaurants, consumers’ demand for dining out at restaurants is improving amid easing pandemic restrictions. According to Andrew K. Smith, managing director of the Mercado Partners' Savory Fund, it’s a perfect time to get aggressive in the restaurant industry.
In addition, consumer spending is expected to grow further in the coming months because of the holiday season. According to Statista, the U.S. chain restaurant industry’s market size is predicted to reach 149.57 billion in 2021.
So, we think it may be wise to bet on fundamentally strong restaurant stocks Papa John's International, Inc. (PZZA), Ruth's Hospitality Group, Inc. (RUTH), Noodles & Company (NDLS), and Good Times Restaurants Inc. (GTIM).
Papa John's International, Inc. (PZZA)
Louisville, Ky.-based PZZA operates and franchises pizza delivery and carryout restaurants in the USA and internationally. It operates through four segments: Domestic Company-Owned Restaurants; North America Commissaries; North America Franchising; and International Operations.
On September 29, PZZA announced its most significant domestic franchise development agreement with Sun Holdings, Inc. Amanda Clark, Papa John’s Chief Development Officer, said, “We’re excited to launch this milestone partnership with Guillermo and his team at Sun Holdings in Texas. Sun Holdings is a successful and well-financed operator who understands the Texas market and brings deep expertise within the QSR space that will benefit the entire Papa John’s system.”
PZZA’s total revenues increased 8.4% year-over-year to $512.78 million in the third quarter, ended September 26, 2021. Its operating income came in at $38.58 million, up 57.1% year-over-year. Its net income for the quarter was $29.26 million, up 86.2% year-over-year. Furthermore, its EPS was $0.79, up 125.7% year-over-year.
Analysts expect PZZA’s revenue and EPS to increase 13.7% and 140%, respectively, year-over-year to $2.06 billion and $3.36, in the current year. In addition, it has surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 26.9% in price to close yesterday’s trading session at $129.31.
PZZA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
PZZA has a B grade for Growth and Quality. Within the B-rated Restaurants industry, it is ranked #4 of 43 stocks. Click here to see the additional POWR Ratings for Sentiment, Value, Momentum, and Stability for PZZA.
Ruth's Hospitality Group, Inc. (RUTH)
RUTH develops, operates, and franchises fine dining restaurants under the Ruth's Chris Steak House name. Its restaurants offer food and beverage products for special occasion dinners, frequent customers, and business clients. It has around 140 restaurants worldwide. RUTH is based in Winter Park, Fla.
On September 28, 2021, RUTH opened its newest location in Short Hills, N.J. Cheryl Henry, President and CEO of RUTH, said, “We are delighted to be opening our newest New Jersey location, and we look forward to welcoming our guests to enjoy a world-class steak house experience.”
For its fiscal third quarter, ended September 26, 2021, RUTH’s total revenues increased 64.3% year-over-year to $104.19 million. The company’s operating income came in at $9.03 million, compared to a $5.12 million loss in the year-ago period. Its net income came in at $6.94 million, versus a $5.3 million loss in the previous period. Furthermore, its EPS came in at $0.20, compared to a $0.15 loss in the last year’s quarter.
RUTH’s revenue is expected to be $427.58 million in its fiscal year 2021, representing a 53.9% year-over-year rise. The company’s EPS is expected to increase 384.2% year-over-year to $1.08 in the current year. Also, it surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 26.3% to close yesterday’s trading session at $19.
It is no surprise that RUTH has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has an A grade for Growth, and a B grade for Value and Quality.
RUTH is ranked #3 in the Restaurants industry. Click here to see the additional POWR Ratings for RUTH (Stability, Sentiment, and Momentum).
Noodles & Company (NDLS)
NDLS develops and operates fast-casual restaurants. The Broomfield, Colo.-based concern offers cooked-to-order dishes, including noodles and pasta, soups, salads, and appetizers. It operates approximately 378 company-owned and 76 franchised restaurants in 29 states and the District of Columbia.
On August 24, 2021, NDLS announced that it had made a multi-unit franchisee and area development agreement with Carlos Hill, the President of Tsunami Enterprises, LLC. Hill said, “I look forward to expanding Noodles & Company’s presence in West Texas and Southern New Mexico. I’ve always been a fan of the brand and its impressive and unique offering of global flavors.”
NDLS’ total revenue increased 18.1% year-over-year to $125.13 million for its fiscal third quarter, ended September 28, 2021. Its income from operations was $5.32 million, up 636.8% year-over-year. Also, its net income came in at $4.7 million, versus a $127,000 loss in the year-ago period.
For its fiscal year 2021, NDLS’ revenue and EPS are expected to grow 22.5% and 196.6%, respectively, year-over-year to $482.17 million and $0.28. Over the past year, the stock has gained 58% in price to close yesterday’s trading session at $11.79.
NDLS’ strong fundamentals are reflected in its POWR ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
In addition, it has a B grade for Growth, Value, and Sentiment. NDLS is ranked #2 in the Restaurants industry. Click here to see NDLS’ ratings for Stability, Momentum, and Quality.
Good Times Restaurants Inc. (GTIM)
GTIM and its subsidiaries are in the restaurant business in the USA. It operates and franchises Good Times Burgers & Frozen Custard, an upscale quick-service drive-through dining restaurant, and Bad Daddy's Burger Bar, a full-service upscale casual dining restaurant. It is based in Golden, Colo.
On August 11, 2021, Ryan M. Zink, GTIM’s President and CEO, said, "Our strong same-store sales at both brands, as well as attaining 2019 sales levels beginning in July at Bad Daddy’s, are the results of the commitment and dedication of our restaurant leaders and team members who embrace our mission to serve our guests and operate great restaurants despite the pressures and challenges arising from a difficult hiring environment."
GTIM’s total net revenues have increased 39.4% year-over-year to $33.95 million for its fiscal third quarter, ended June 29, 2021. Its income from operations was $2.45 million, up 190.2% from the prior year’s quarter. Its net income came in at $13.63 million, up 4,617.6% year-over-year.
For its fiscal year 2021, GTIM’s revenue is expected to grow 23.2% year-over-year to $135.3 million. Its EPS is estimated to grow at 30% per annum for the next five years. Over the past six months, the stock has gained 22.8% in price to close yesterday’s trading session at $4.93.
GTIM has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Value, and a B grade for Growth, Sentiment, Quality, and Momentum.
GTIM is ranked #1 in the Restaurants industry. Click here to see GTIM’s ratings for Stability.
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PZZA shares were trading at $128.19 per share on Wednesday morning, down $1.12 (-0.87%). Year-to-date, PZZA has gained 52.59%, versus a 26.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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