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Investors are betting on restaurants

Investors are betting on restaurants

This post is part of the Reporter's Notebook blog.

Investors seem to have rediscovered the restaurant industry so far in 2015, but they’ve done so cautiously — pouring money into perceived winners while abandoning any company that underperforms.

On average, stocks are up nearly 11 percent so far in 2015, according to the NRN Restaurant Index, Nation’s Restaurant News’ exclusive stock tracker for the restaurant industry. By comparison, restaurant stocks rose only 3.5 percent in 2014.

Nearly six in ten restaurant stocks have increased in value, and 25 of the 58 stocks we track regularly are up over 10 percent on the year. Shake Shack, which went public in January, has nearly tripled its initial offering price.

But there have been plenty of losers on the year, including a pair of surprising companies that are traditional Wall Street darlings, Buffalo Wild Wings and, surprisingly, Chipotle. Both companies are down more than 11 percent on the year so far.

That is due largely to a combination of value, expectations and performance. Both stocks entered the year among the highest valued restaurant stocks on Wall Street after remarkable performances last year. But that also left their values at peak, and many investors believe their growth is slowing.

Among segments, the biggest winner was pizza, which is of little surprise: Pizza-only companies Papa John’s International, Domino’s Pizza and Papa Murphy’s have demonstrated strong growth this year (and last). Consumers have eaten a lot of pizza lately, many of the chains are using innovative strategies to get customers to order more pizza, and they’re taking business away from independents and the struggling Yum Brands concept Pizza Hut.

On average, the pizza concepts are up 36.52 percent on the year, according to NRN’s analysis.

Other segments are less certain. Take fast casual concepts, which are up more than 26 percent so far this year. But take away two IPOs: Shake Shack and Wingstop, and the segment has actually declined slightly, down 0.26 percent.

As the Chipotle example reveals, many fast casual chains came into the year highly valued and have struggled to match the expectations that come with those values. Five of nine fast-casual companies on Wall Street have declined in value, including Noodles & Company, so far the worst performing restaurant chain, down nearly 45 percent on the year.

Casual dining also seems to have a split personality. Several casual dining companies have performed strongly this year, including Chuy’s (up 36 percent) and Dave & Buster’s (up 32 percent).

But for every strong performer there is one that’s struggled. Ignite Restaurant Group is down 37.5 percent this year. Famous Dave’s is down nearly 24 percent.

On average, casual dining companies are up less than 1 percent.

But family dining, which has enjoyed something of a renaissance of late thanks to consumers’ love of breakfast and low gas prices, is up 8 percent on average. To be sure, much of that is the nearly 28-percent increase at Frisch’s Restaurants, which is about to be taken private. But Denny’s, Luby’s and Cracker Barrel are all up at least 6 percent on the year. And Cracker Barrel is at its all-time high.

As for QSR, the segment is performing well in spite of the struggles at category leader McDonald’s Corp., which is up 1.5 percent this year as its new CEO, Steve Easterbrook, makes big changes. On average, QSR chain stocks are up nearly 5 percent on the year.

The Wendy’s Company is up nearly 25 percent so far this year on its refranchising plan and share repurchase program. Yum is up 24 percent thanks to the gushing praises of a pair of activist investors and signs of improvement in its crucial China market. And Jack in the Box is up more than 10 percent thanks to the performance of Qdoba and, apparently, its Buttery Jack Burger.

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

TAGS: Stock Data
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