This post is part of the On the Margin blog.
Investors have lost their appetite for restaurants.
Falling sales and a handful of badly struggling concepts have investors turning away from the restaurant industry.
Nearly two-thirds of restaurant company stocks have fallen so far in 2016. The average decline was 8.3 percent.
Much of that decline has come in the past two quarters. The NRN Restaurant Stock Index has fallen more than 5 percent over the past six months.
The problem with restaurant stocks this year has been the performance of the companies at the very bottom. For instance, there is Cosi Inc., a penny stock that is about to lose its Nasdaq listing. The company filed for bankruptcy protection last week and has fallen more than 84 percent this year.
And that wasn’t even the worst decline. That distinction belongs to Ignite Restaurant Group, which has fallen 84.3 percent so far this year and is now trading under $1 per share. Ignite, the owner of Joe’s Crab Shack, has struggled with weak sales and a lack of profitability.
There is also Rave Restaurant Group, which is down more than 61 percent this year as its growth chain, Pie Five, has struggled. Ruby Tuesday, which closed 95 locations and then changed CEOs, is down nearly 55 percent. And Noodles & Company, which is also struggling to generate sales, is down 51 percent.
To be sure, a number of companies have had good years on Wall Street, led by McDonald’s Corp.’s Latin American franchisee Arcos Dorados Holdings Inc. (up 70 percent).
And two of the big pizza chains are also doing well. Papa Johns International Inc. is up 40 percent. Domino’s Pizza Inc. is up 36 percent. Not surprisingly, the big pizza chains in general have generated same-store sales growth this year even as other sectors have struggled.
Investors seem to believe that quick-service chains will also fare well. Quick-service concepts are up more than 4 percent on average this year, thanks to strong performances by the stocks of Steak ‘n Shake owner Biglari Holdings (up 34 percent) and quick-service operator Yum Brands (up 24 percent).
On the other hand, they are turning away from casual-dining concepts. On average, casual-dining restaurants have declined by more than 17 percent — thanks to especially weak performance by the aforementioned Ruby Tuesday and Ignite as well as declines at Bravo Brio Restaurant Group (down 47 percent) and Fogo de Chao (down 30 percent).
Investors aren't buying into the fast-casual revolution, where Cosi’s and Noodles’ issues have brought the sector down more than 21 percent this year.
Only two fast-casual concepts are up this year: Wingstop and Potbelly (up 6 percent), while Panera Bread is flat. Every other company in that sector is down by at least 11 percent.
Jonathan Maze, Nation's Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.