Restaurant stocks have been performing strongly this year, for the most part.
Viewed as a key part of the post-pandemic economic reopening, many restaurant companies have seen their share price appreciate 30% or more so far in 2021.
Industry leaders such as Shake Shack (NYSE:SHAK), Domino’s Pizza (NYSE:DPZ) and Dave & Buster’s (NASDAQ:PLAY) have been going gangbusters in 2021 as a resumption of in-store dining complements their robust drive-thru and delivery sales. But not all restaurant stocks have been winners.
Laggards abound. Whether through disappointing earnings, lack of drive-thru capability, or poor overall management, several restaurant stocks trail the industry when it comes to their performance.
In this article we look at four restaurant stocks that are on their last legs.
Restaurant Stocks on Their Last Legs: McDonald’s (MCD)
Let’s start with the iconic Golden Arches. MCD stock has been pretty anaemic for most of this year. From mid-January to mid-March, McDonald’s share price was stuck in neutral and hovering around $205 a share.
The shares have rallied over the past month and are now up 10% or so year-to-date. However, at their current level of $230 a share, McDonald’s stock today is at the same level it was at in October 2020.
The performance of MCD stock has been extremely disappointing for investors who view the world’s biggest restaurant chain as a growth stock as well as to those who feel McDonald’s should benefit as the economy reopens.
A combination of things have been holding the share price back.
In-store dining continues to remain off-limits in most jurisdictions, which limits sales to drive-thru counters; minimum wage levels are rising around the world, including a push to bring it up to $15 an hour in the U.S., which could hurt profitability; and efforts to update and diversify the menu have been hit-and-miss.
Moving forward, the fast-food company will need to ride a post-pandemic economic resurgence to get back in the good graces of investors and put a spark in MCD stock.
Wingstop (WING)
Everybody’s favorite chicken wing restaurant has been a disappointment this year.
After cresting at $172.87 on Feb. 11, WING stock has crumpled and fallen to its current level of around $145. The stock remains 15% below where its share price was last August.
The poor performance is the result of Wingstop missing the targets set by Wall Street. For the fourth quarter of 2020, Wall Street analysts had expected the company to post revenue of $64.1 million and earnings per share of $0.24. Wingstop fell short with revenues of $63.3 million and a loss per share of $0.21.
Making matters worse has been the weak forward guidance provided by Wingstop. The company announced that it foresees a slowdown in its two major components, new store locations and growth among existing restaurants.
Investors clearly do not like the outlook for Wingstop. This disappointment obscures the fact that Wingstop generated revenue of $248.8 million in 2020, up 25% year-over-year.
The company also maintains its long-term goal of opening 6,000 restaurant locations, up from 1,500 currently. How long that will take, the company hasn’t said.
Dicey Restaurant Stocks: Denny’s (DENN)
Another stock that is losing traction is Denny’s, the casual restaurant chain famous for its Grand Slam breakfast and generous portions.
DENN stock has slid downward 12% since March 15 and currently trades around $18 a share. The stock remains 25% below the level it was at before the Covid-19 pandemic. Much of the problem can be attributed to the closure of in-store dining.
Unlike other restaurants, Denny’s doesn’t have drive-thru counters and doesn’t deliver food to people’s homes. This has made the past year especially difficult for Denny’s and its shareholders.
The earnings picture has been pretty bleak. For the fourth quarter of 2020, Denny’s reported an adjusted loss per share of $0.05, which was lower than analysts expected, and noted that same-store sales growth cratered at negative -32.9%.
Denny’s noted at the end of February that only 1% of its stores have no Covid-19 restrictions, while 31% of U.S. stores continue to operate at 50-66% capacity. Regardless, some analysts remain hopeful that Denny’s will rebound post-pandemic, especially with many locations open 24-hours a day. Time will tell.
Papa John’s (PZZA)
Pizza chain Papa John’s has seen its stock decline 16% since February 12. The Louisville-based company has seen its stock largely stuck in neutral since last summer.
At nearly $95 a share today, PZZA stock is 8% lower than where it was in August 2020. The trouble can be attributed to disappointing earnings. In February, the company reported earnings per share of 40 cents versus 46 cents that had been expected by analysts. Revenue came in at $469.8 million versus the $467.9 million that was expected.
The company blamed the latest miss on higher food costs, a new corporate office and employee bonuses that it paid out at the end of 2020.
Regardless of the reasons, investors did not appear to be in a forgiving mood and have sold PZZA stock. That Papa John’s declined to provide any forward guidance on its financial targets in 2021, citing the uncertainty caused by the pandemic, also didn’t go over well with investors.
The news isn’t all bad though. Papa John’s has reaffirmed its plans to open a new $20 million corporate headquarters in downtown Atlanta this year.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
