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Restaurant Stocks: The Next Market Bubble?

Names such as SONC and CMG have exploded in the past year, but a pop in the industry's high-fliers isn't necessarily imminent

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There’s a lot of talk at the moment about both a biotech bubble and a tech bubble. In some ways, it’s like we’re back in 1999 when anything with a pulse was racing to the moon. (Of course, in hindsight, we all know what happened next.)

Source: Flickr

Stock bubbles always leave someone holding the bag — don’t let it be you.

Speaking of bubbles, there’s one that almost no one is talking about.

A select group of restaurant stocks — not all, mind you — have outperformed their peers as well as the S&P 500 by a country mile over the past year. This success is fueling the IPO fire with several growth stories that have recently gone public or are planning to do so in the near future.

All of this speculative action begs the question: Can these restaurant stocks keep it up in 2014 and beyond, or is a “pop” in the cards? That’s what I’m here to answer.

The Select Few

Restaurant stocks as a group are up 18% through March 31 while the S&P 500 gained 24% in the same period. Year-to-date, restaurant stocks are up a measly 0.4% compared to 2.7% for the index. So, as a group, its performance has been mediocre at best.

But a large number stand out from the rest — as in, at least doubling the index, so, 44% or greater in the past year:

Restaurant Stocks With Total Return of 44%-Plus in the Past 12 Months
Company TICKER Total Return Company TICKER Total Return
Sonic SONC 80% Red Robin Gourmet Burgers RRGB 64.4%
Chipotle CMG 76.7% Wendy’s WEN 63.9%
Jack in the Box JACK 72.9% Del Frisco’s Restaurant Group DFRG 61.3%
Buffalo Wild Wings BWLD 66.7% Domino’s Pizza DPZ 53.5%
Fiesta Restaurant Group FRGI 65.8%
Source: Morningstar

This is a very disparate group of restaurants. If you sat down a year ago to pick some winners in the restaurant space, you never would have been able to capture all nine of these businesses because there’s representation from quick service, fast casual, casual dining, fine dining and even pizza delivery and take-out.

You’ve got a little bit of everything.

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