I have never been a fan of so-called “casual” dining restaurants — not as eateries, nor as investments. (For dining options, I have a huge preference for locally owned places.)
Earnings growth for most restaurant stocks that play the casual market is sustainable only by continuously opening new locations, and the multiples investors are willing to pay are universally too high for my tastes. I have been around this business for years and have many friends who own eateries and bars, so I’m well aware of how difficult a business it is.
The only time in the past three decades that I have been even mildly excited about restaurant stocks was in 2009 when the high-end eateries sold off with the market. Obviously, the wealthy still had some money left and weren’t going to stay home, so I bought some higher-end dining stocks like Ruth’s Hospitality (RUTH) with satisfactory results.
Looking at some of the recent earnings reports just underscores my dislike for these restaurant stocks. Here are three to avoid or even sell.