The COVID-19 pandemic significantly reshaped the restaurant industry, forcing many establishments to adapt or face closure. With in-person dining restrictions in place, restaurants had to pivot to take-out and delivery to stay afloat. While some managed this transition successfully, many struggled. And unfortunately, many restaurant stocks struggled as well.
Now that the pandemic is behind us, Americans have returned to eating out, and restaurant earnings are again prospering. According to a report from Kalinowski Equity Research, restaurants currently have a 56% market share compared to grocery stores.
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So, what does all of this mean for investors? It means the restaurant sector is worth looking into if you want to diversify your investment portfolio further. However, the goal is to find undervalued restaurant stocks to buy, which will provide you with the greatest potential return.
Keep reading as we explore six of the best restaurant stocks for 2024. If you end up investing in any of these companies, make sure you add them to your stock portfolio tracker at Ziggma.
6 Best Restaurant Stocks to Buy
We view the restaurants below as giving the best opportunity to deliver a return to investors.
Chipotle Mexican Grill
Chipotle Mexican Grill (CMG), a popular fast-casual chain, has seen its stock price fly high for most of 2024. As of July 11, the stock price is up more than 27%, although it’s pulled back slightly since undergoing a 50-1 stock split on June 26.
The good news for Chipotle is that companies typically do well after going through a stock split. Chipotle is expecting strong revenue growth of 15.13% next year. However, it’s also important to note that the stock price isn’t cheap. It’s currently trading at a P/E of 62x.
McDonald’s
Fast food restaurant McDonald’s (MCD) was one of the winners throughout the pandemic. Because more than half of its restaurants have a drive-thru window, they could continue serving customers normally, even when restrictions were in place.
That leads us to 2024. On the surface, McDonald’s might not seem like a screaming buy. As of July 10, it’s down 14.72% and trading near its 52-week low. During its most recent earnings call, there was some concern about growth due to inflationary pressures. That prompted them to announce the return of their $5 meal deals. The hope is that they will be able to show consumers that they can still offer outstanding value compared to other restaurants.
On the bright side, McDonald’s is one of the best dividend stocks available and has been for years. They’ve increased their dividend in each of the last 48 years and will soon join an exclusive club as the next dividend king.
Some technical experts say the stock price is near the bottom, which is a great time to buy the dip. From a fundamental standpoint, it has a PEG below 1, which means the stock price is inexpensive when adjusted for growth. All things said this might be a great time to buy into this restaurant stock.
Yum China Holdings
Yum China Holdings (YUMC) is the largest restaurant group in China. Its portfolio includes brands like KFC, Pizza Hut, and Taco Bell. Yum China Holdings has grown fast, with more than 700 new locations opened in 2023.
Unfortunately, China is experiencing an economic downturn, which has spread to the restaurant industry. As of July 10, Yum China Holdings’ stock price is down 24.02% YTD. However, not everything is bad. In 2023, the company reported record profits of $11 billion and projected 2024 revenue to increase to $11.7 billion. It’s also expected that earning per share growth will be 9% in 2024 before returning to double digits in 2025. And with a P/E ratio of only 14.9x, it’s relatively inexpensive.
Darden Restaurant Group
Darden Restaurant Group (DRG), the parent company of restaurants like Olive Garden, Yard House, and Longhorn Steakhouse, has struggled for much of 2024, but because of its high growth plans, this is a stock you should watch.
During its 2024 fiscal year (which ended in May 2024), Darden Restaurant Group opened 53 new restaurants and added Ruth’s Chris Steakhouse to its growing portfolio of sit-down restaurants. Plus, from a valuation standpoint, Darden Restaurant Group is one of the more undervalued restaurant stocks, given its forward P/E of 16x (the industry average is 22.45x).
Something to watch is the company’s increased costs. In Q4 for fiscal 2024, total operating costs increased 7% to $2.56 billion. This increase was mostly due to increased food, beverage, and labor costs. However, with an average analyst price target of $174.04, there could be a 26% upside.
Wingstop
If you aren’t familiar with Wingstop Inc. (WING), they’re an industry leader in chicken wings. In recent years, they introduced chicken thighs to help overcome chicken wing shortages and increased prices. This is just one of the many reasons the company has achieved same-store sales growth in the past 20 years, including 18% growth last year.
Wingstop isn’t a cheap investment, though. Its share price skyrocketed to more than $400 per share in June before pulling back over recent weeks. With a P/E of 135.5x, some analysts are questioning whether the price is too expensive. This has led many to speculate that Wingstop could be one of the next companies to announce a stock split.
Dominos Pizza
Through the ups and downs in the restaurant industry, pizza has always been something people could count on to deliver sales and revenue. Domino’s Pizza (DPZ) has been a leader for years. However, revenue was only up 6% year over year in Q1 2024 and was down 1% for 2023. These numbers are slightly deceiving because a majority of Domino’s 20,500 locations are run by franchises. Domino’s generates a majority of its revenue from franchise fees and royalties.
Additionally, a high net income margin has allowed Domino’s to consistently repurchase shares, which helps boost the value of its outstanding shares. That, combined with the fact that they’ve raised their dividend for the past 11 years, has contributed to the share price being up more than 563% over the past ten years and 15.63% year to date.
The Bottom Line
Expanding into different industries will help you better diversify your investment portfolio. While many restaurant chains suffered during the pandemic, many have made a significant comeback over the past year or two. These six companies could be poised for big returns as we head into the last half of 2024 and move into 2025.