The fast-food scene seems to be an intriguing place to invest these days with reasonable valuations and fairly defensive growth prospects. With a growing number of firms looking to feast on the profits from the booming market, not all fast-food firms are destined to reward their shareholders with returns above the market averages.
The firms that can grab more market share are worthy of a higher price tag. When it comes to growth in the fast-food world in the modern age, it’s more than just about digitization, delivery and drive-thru, three traits that were the keys to success during the early days of the COVID pandemic.
Looking ahead, restaurant modernization, automation and menu innovation could be the three keys to grabbing more share of the quick-serve restaurant market. Let’s check in with three fast food stocks that look good to go in 2024.
McDonald’s (NYSE:MCD) nosedived following the release of some distasteful quarterly earnings that saw some consumers shy away from the burger giant in favor of some good, old-fashioned home cooking. Once thought of as relatively inflation-resilient, it now seems that McDonald’s has jacked up prices a tad too far, such that consumers have put their wallets away. Additionally, the value menu does not quite offer the same value proposition it used to, not after the storm of inflation.
At this juncture, it seems like McDonald’s may be inclined to return to its value roots by addressing some of its consumers’ affordability concerns. A viral photo of a $18 Big Mac meal is not doing McDonald’s any favors on social media, especially as a fast-food firm that used to pride itself on food that’s both tasty and affordable.
I think it’s clear that McDonald’s overestimated the strength of its “pricing power” muscle. And now, it needs to beckon consumers back with better deals, new menu offerings and freshly renovated stores. A bit of automation couldn’t hurt either, as firms beyond tech look to grab what AI has to offer.
Domino’s Pizza (DPZ)
Domino’s Pizza (NYSE:DPZ) had delivery down well before many of its peers in the affordable fast-food scene. Though peers, especially those outside the pizza market, have since caught up, I’d argue that pizzas remain one of the better items to have delivered straight to your door. Pizza pies seem to be immune from the “sog” effect, something that french fries from the local burger joint may succumb to on those lengthy rides over from the restaurant.
As Domino’s looks to move on from an underwhelming past two years that saw shares actually fall by just over 3%, investors ought to be enticed by what the pizza chain has in store in 2024. The company is serious about clawing at the share of its competitors in the pizza world and has plans to get the job done. Specifically, the firm wants to open more corporate stores while expanding its footprint internationally.
International growth could be where it’s at as the company looks to repeat the success it enjoyed domestically. As to whether the effort will cook up hot gains this year remains to be seen. At 29.1 times trailing price-to-earnings, I do like the price of admission.
Cava (NYSE:CAVA) is a lightweight in the restaurant scene with a modest $6 billion market cap. The Mediterranean restaurant chain recently received a “top pick” rating from Baird. The firm views Cava as having “many of the same attributes” that helped make Chipotle Mexican Grill (NYSE:CMG) one of the firm’s best growth picks. I think Baird is right to hold Cava stock in such high regard.
Undoubtedly, Cava does seem to take a few pages out of an early-stage Chipotle’s playbook. On the whole, Mediterranean food is quite fresh and healthy (like Chipotle’s Mexican offerings), allowing it to gain from the secular tailwind of health and wellness.
Additionally, Cava is a small fish in a massive market that’s ripe for disruption from new up-and-comers. All considered, Cava is a new-age growth play for those looking to play a different angle on the quick-serve restaurant scene.
On the date of publication, Joey Frenette owned shares of McDonald’s. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.