On the Margin
Restaurant stocks are still flourishing

Restaurant stocks are still flourishing

This post is part of the On the Margin blog.

The stock market has had a volatile August. On Aug. 17, the S&P 500 Index was up modestly for the year. By the end of that week, it would be down about 10 percent.

While it has recovered some of those losses in the days since, thanks to some wild swings, it remains down more than 4 percent on the year.

Likewise, restaurants have had a tough month: They’ve fallen more than 6 percent in August, and on Monday fell more than 1.5 percent, according to the NRN Restaurant Index. Only nine of the 45 companies in the index are up over the past three months.

This is hardly a surprise. Restaurant valuations are high. By the simple law of nature, those valuations are bound to come down some time.

But even with the recent decline in stock prices, restaurant stocks remain up more than 9 percent on the year.

Several restaurant chains are up considerably even after a recent pullback. Dave & Buster’s, for instance, has seen its stock price double over the past year. Carrols Restaurant Group is up 73 percent. Papa John’s is up nearly 70 percent, thanks to that chain’s strong sales.  

To be sure, more than a few concepts have also fallen on hard times in the eyes of Wall Street — notably some relatively recent restaurant IPOs that have fallen out of favor with investors.

Thirteen months ago, for instance, El Pollo Loco went public at $15 a share and doubled in value in the days after its IPO amid misguided comparisons of the chicken chain with Chipotle.

It has lost all of that: The stock closed down 5 percent today and is trading at just north of $13 a share, well below that offering price. It’s down 35 percent this year. It’s down 69 percent from its post-IPO high.

Likewise, Noodles & Company has lost more than half of its value this year amid sales struggles. It is now trading below $12 a share.

Overall, however, restaurant sales have improved this year — nearly three quarters of restaurant operators told the National Restaurant Association that their July sales improved, for instance. And improving sales give investors more confidence in the industry.

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

TAGS: Stock Data
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