Buy These 5 Restaurant Stocks With Growth Potential as Sales Soar

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The U.S. restaurant industry has grown at a solid pace over the past couple of years even though prices posed a major challenge for both consumers and operators. Higher personal income and spending have been the major factors driving sales amid inflationary pressures.

Last week, the Commerce Department reported that restaurant sales grew at a solid pace in October, and is on track to end the year on a high.

Given the positive outlook, investing in restaurant stocks, such as CAVA Group, Inc. CAVA, Dutch Bros Inc. BROS, Shake Shack Inc. SHAK, Brinker International, Inc. EAT and Kura Sushi USA, Inc. KRUS will be a prudent choice. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Restaurant Sales Grow in October

The Commerce Department said last week that sales at U.S. bars and restaurants totaled $97.3 billion in October, up 0.3% month over month, after increasing 1.2% in September. On a year-over-year basis, sales at restaurants grew 4.2% in October.

For the 10 months through October, sales totaled $495.4 billion. Sales have grown faster than the rise in food inflation. According to the Labor Department, the consumer price index for food away from home rose 3.8% year over year in October, which suggests that only part of the rise in sales can be attributed to higher prices on the menu.

Inflation posed a major challenge over the past couple of years and is still above the Federal Reserve’s 2% target. However, sales growth surpassed price increases during the entire phase of high inflation. Monthly sales at restaurants have jumped 41% since February 2020, the pre-pandemic era.

Restaurant Stocks to Benefit

Rising prices have posed challenges for restaurant owners as cost-conscious customers prioritize value for money. Quick-service restaurants, especially those focused on affordability, have managed to stay strong in this tough market.

As budget-conscious diners seek economical dining options, competition in the value-driven segment has grown significantly. To attract and retain customers, brands are ramping up their promotions and rolling out money-saving deals.

Industry stakeholders are benefiting from steady demand for budget-friendly offerings and competitive pricing strategies. Many restaurants are leveraging promotional efforts, forming strategic partnerships, and launching new products to maintain customer interest.

According to the National Restaurant Association, sales at U.S. restaurants are projected to surpass $1.1 trillion in 2024. The Federal Reserve cut interest rates by 75 basis points since September after inflation declined sharply over the past year. With price pressures subsiding, the restaurant industry is poised to gain in the near future, as reduced borrowing rates are expected to benefit both restaurant owners and customers.

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