On the Margin
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Restaurant stocks have exploded since election

Blog: Led by big companies, restaurant stocks rise 25 percent since November

This post is part of the On the Margin blog.

The presidential election was really good for restaurant stocks. 

Since Donald Trump won the presidency in November 2016, restaurant stocks have risen 25 percent. And they are up 20 percent so far this year, according to the NRN Restaurant Index.

To be sure, the market as a whole has skyrocketed over that time, rising 14 percent, according to the S&P 500 index. Still, restaurants are outperforming the broader market.

Much of the industry's strength is coming from the top. Several big restaurant companies have seen strong performance this year.

McDonald’s Corp., for instance, hit an all-time high and passed $150 per share for the first time in company history. Darden Restaurants Inc., Dunkin’ Brands Group Inc., and Yum! Brands Inc., are among companies that recently established all-time highs.

Texas Roadhouse Inc., Domino’s Pizza Inc., and Dave & Buster’s Entertainment Inc., have also recently established new all-time highs. Meanwhile, The Wendy’s Co. is trading at a post-recession high, and Starbucks Corp. is trading close to its all-time high this year.

Many of these companies have earned investor confidence through performance or other initiatives. Investors are betting on McDonald’s generating improved sales with technology, loyalty and next year’s introduction of fresh beef. Wendy’s has consistently generated sales and expects to do so through increasing remodels. Domino’s is the best-performing publicly traded restaurant company. 

Investors are turning to restaurants in part because there simply isn’t much else for consumer investors.

The industry is coming off a challenging year. Same-store sales and traffic have been as weak as they’ve been since the recession, amid intense competition and shifting consumer behavior.

At the same time, restaurant companies have been replacing CEOs at a remarkable pace. A number filed for bankruptcy. Others are taking extraordinary steps to avoid such a situation.

Given the broader weakness, one would think investors would pause before handing out extraordinary valuations to restaurant companies.

Yet as bad as it’s been, restaurants don’t have anything resembling the problems at retail shops and other industries facing Internet-based threats. Consumer investors, in short, have few options outside of restaurants — which remain a highly popular place for consumers to spend their money.

Indeed, restaurants continue to expand. They feel confident enough in their futures to be adding workers at a higher-than-average pace. And the same-store sales weakness of the past few quarters, at least in theory, could disappear in the near future, thanks to easier comparisons.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

TAGS: Finance
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