Restaurant stocks have been pretty hot in the first quarter of 2015, rebounding nicely from last year’s disappoinment. On the whole, they’re up 8.4% year-to-date, compared to 2.6% for the S&P 500. If it keeps up this pace, it will be the first time since 2011 that the sector has outdone the index.
Need more evidence?
The Restaurant Performance Index (RPI) came in above 100 in January, marking the 23rd consecutive month of a generally favorable outlook in the U.S. restaurant industry.
The RPI hasn’t been this positive since 2004, providing investors with a slew of restaurant stocks to buy now.
So what should investors be looking for when it comes to buying restaurant stocks?
The most important criteria is quality management. All five of these restaurant stocks are “buys” because their management teams have been in place for a long time and know how to handle the up and downs of the restaurant business.
Here’s a closer look at these five tasty restaurant stocks to buy now:
Tasty Restaurant Stocks to Buy: Popeyes Louisiana Kitchen Inc (PLKI)
A little over a year ago, AFC Enterprises became Popeyes Louisiana Kitchen Inc (NASDAQ:PLKI), reflecting the brand that’s brought it so much success in recent years. Since then its stock is up 50%, keeping a hot streak alive that’s been going since 2008.
In the past five years PLKI has averaged an annualized total return of 40%, double that of its restaurant peers and S&P 500.
CEO Cheryl Bachelder, a former president of Yum! Brands, Inc. (NYSE:YUM) KFC subsidiary, was on the Popeyes board before when the struggling chain moved her into the top position in 2007. She immediately went to work investing in its business at a time when most chains were just trying to stay alive.
The company had global same-store sales of 6.2% in 2014, 250 basis points higher year-over-year. Just as important, its domestic chicken-QSR market share hit 23.2% in 2014, 240 basis points higher than in 2013.
Since Bachelder has taken over, PLKI’s increased its market share by 50%. As long as Bachelder is at the helm, this is definitely one of the hot restaurant stocks to buy now.
Tasty Restaurant Stocks to Buy: Papa Murphy’s Holdings Inc (FRSH)
Papa Murphy’s Holdings Inc (NASDAQ:FRSH) went public in May 2014 at $11 per share. Its stock price immediately went into the tank, trading below the IPO price before recovering in December. Now it’s on the move, up 42% year-to-date.
The Portland-based pizza chain invented the take-n-bake concept in 1981 and has since grown to 1,400 franchised and corporate-owned stores in 38 states, Canada and United Arab Emirates.
The positives in fiscal 2014 include an 8.1% comparable store sales increase at domestic company-owned stores, along with a 4.3% increase for domestic franchisee-owned stores; 95 store openings system-wide including 87 in the U.S.; and adjusted earnings before interest, taxes, depreciation, and amortization growth of 13.3%.
Currently in the midst of a slight makeover with more of its locations being acquired and kept as company-owned outlets rather than being refranchised, Papa Murphy’s require less square footage than a traditional pizza joint because there are no ovens, making them far less costly to operate.
Long term, this is a huge differentiator for prospective franchisees. Although pizza is fairly overdone, the take-n-bake concept will ultimately rise to the occasion.
Tasty Restaurant Stocks to Buy: Levy Acquisition Corp (LEVY)
Levy Acquisition Corp. (NASDAQ:LEVY) merged this month with the No. 2 Mexican QSR company, Del Taco Holdings, for an enterprise value of $500 million. It’s hard not to get excited about the company’s future.
What to like about Del Taco? Levy raved about the brand on his March 12 conference call with analysts:
“Del Taco is a 50-year old iconic brand, primarily on the West Coast, with an extremely loyal and cult-like following. Customers are loyal for good reason. You cannot beat Del Taco’s food, which is fresh, high quality, and at extraordinarily inexpensive prices. Del Taco has huge potential and we’re excited to partner with, as you will hear soon, their impressive management team … We are buying an iconic restaurant company at a very good price.”
With 547 restaurants in the U.S., Del Taco has generated more than $650 million in annual sales. As Levy suggests, Del Taco offers a compelling value proposition to its customers where the average check of $6.49 is lower than most of its peers.
Management believes there is potential to open another 1,500 units domestically, with the first 400 through in-fill opportunities in cities where they’re already located.
Larry Levy, in combination with Del Taco CEO Paul Murphy, will have this brand humming in no time.
Tasty Restaurant Stocks to Buy: Cracker Barrel Old Country Store, Inc. (CBRL)
Despite fighting tooth and nail with CBRL management the last four years over how best to operate its business, the wannabe Warren Buffett owes his very job to the success of his Cracker Barrel investment.
Since 2009, Biglari Holdings has earned $490 million in investment gains, most of which were paid for by Cracker Barrel, the very firm he was quarreling with. Given CBRLs fiscal second quarter earnings report last month was nothing but good news for the restaurant/retail establishment, it’s no wonder Biglari hasn’t had much bad to say about Cracker Barrel lately.
In early February Biglari’s hedge fund announced it was selling almost one-third of its CBRL shares, suggesting the days of bickering are soon to be over.
Tasty Restaurant Stocks to Buy: Starbucks Corporation (SBUX)
What would a stock selection exercise such as this one be without throwing out a little love to Starbucks Corporation (NASDAQ:SBUX), one of the most rapidly evolving restaurant operators in the western world? Last week it announced an upcoming 2-for-1 stock split, its first split in a decade.
The move came as the company’s controversial Race Together campaign was facing intense scrutiny from the public and media.
Whether it be a potential delivery service or beer and wine after 4 p.m. in all its restaurants, SBUX is consistently pushing the envelope when it comes to developing the brand. While no firm ever wants to receive negative press, when you’re as big as Starbucks there’s really nowhere to hide.
Two-for-one stock splits are often a good indicator of future performance. If that’s indeed the case here, SBUX might have to split its stock once more before the end of 2015.
SBUX shareholders rejoice.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.