Despite challenges, including inflation and staffing shortages, Chipotle Mexican Grill Inc. (NYSE: CMG), Wingstop Inc. (NASDAQ: WING) and Nathan’s Famous Inc. (NASDAQ: NATH) are restaurant-industry price-performance leaders.
Fast food and casual dining are often considered “recession proof,” as consumers view those restaurants as a place to grab a filling (although often unhealthy) meal for a low price.
When it reported fourth-quarter results on January 31, McDonald’s Corporation (NYSE: MCD) said domestic same-store sales rose 10.3%, driven by more repeat visits than in the previous two quarters. Promotions, including the Adult Happy Meal and the McRib spurred higher store traffic, which resulted in revenue growth.
In the earnings conference call, CEO Chris Kempczinski said, “Overall we're still seeing the consumer is resilient, and it plays to our strengths as a system in terms of being well positioned on value.”
He added, “There is a little bit of a decrease in units per transaction that we're seeing. We're seeing a little trade down, but I must say these are probably on the margin that we're seeing this. Overall, the consumer, whether it's in Europe or the U.S., is actually holding up better than what we would have probably expected or maybe what I would have expected a year ago or six months ago.”
So how are other fast and fast-casual chains faring?
Chipotle Mexican Grill
Chipotle is in a different market segment than McDonald’s as its meals are pricier, it focuses more on fresh ingredients, and all its restaurants are corporate-owned rather than franchised.
Despite higher input costs for anything you can imagine - ingredients, labor, energy, shipping - Chipotle grew earnings at an incredibly fast clip in 2021 and 2022. Analysts expect earnings to increase by 28% this year and another 22% in 2024.
As you can see on its chart, the stock began forming a double-bottom base in mid-September. It cleared a buy point above $1638 on January 31, as restaurant stocks rose on optimism from McDonald’s earnings.
In its most recent quarterly report on February 7, the company said it missed earnings and revenue views. Shares declined on the news, although Chipotle has still posted a one-month return of 4.26%.
Analysts have a “moderate buy” rating on the stock, according to data compiled by MarketBeat. The price target is $1,871, an upside of 18.06%.
It’s currently still in the buy range, but watch to be sure it doesn’t fall more than 5% to 10% below its previous buy point above $1638.
Shares of the chicken-wing purveyor have flown 17.15% higher in the past month, putting its price performance at the top of the restaurant industry.
Revenue growth accelerated in the past two quarters. When the price of wings increased in 2020 and 2021 due to inflation, Wingstop was successful in passing those costs along to customers, who continued flocking to its restaurants.
The company is in rapid growth mode, intending to operate a total of 4,000 restaurants in the U.S. and another 3,000 internationally.
One important point regarding Wingstop: The company reports fourth-quarter results on February 22 ahead of the opening bell, with Wall Street eyeing earnings per share of $0.49 on revenue of $100.62 million. MarketBeat earnings data show that Wingstop topped sales and earnings views in the past two quarters, a factor that helped boost the stock’s price.
The stock broke out of a cup-with-handle base with a buy point at $169 on February 14, but traded lower in subsequent sessions along with the broader market. As of February 21, it was still trading in buy range, above 2% below its handle pivot.
Watch for the earnings report to be a catalyst for a price move either up or down. If the stock gaps higher, refrain from chasing it if you miss the first couple days of an increase; waiting for a moving-average pullback is often a better strategy.
Nathan’s has moved well beyond its Coney Island boardwalk roots and now franchises restaurants in 24 states and internationally. It also supplies food service companies and grocers, and owns the marketing rights for Arthur Treacher’s fish and chips restaurants.
The stock is up 27.33% in the past three months and has largely been able to defy the broad-market selloff in mid-February.
Keep in mind: This is a very small company, with a market capitalization of just $314 million, so there’s plenty of room for volatility, as the stock only has 2.8 million shares in float. A small float can mean it’s harder to find a buyer or seller to match the price you want, resulting in bigger price spreads. In reality, that’s not generally a huge problem for individual investors, but it’s important not to be shocked when you hit the “buy” or “sell” button and you’re disappointed in the price you ultimately get.
Nathan’s earnings grew at solid double-digit rates in each of the past three quarters, although revenue has been slowing.
The stock’s chart shows you that it’s extended beyond its most recent breakout, in mid-January. It’s currently trading just above its 10-day moving average. That could offer a point to add shares, as could a pullback to the 21- or 50-day line.