On the Margin
Restaurant stocks come back to earth

Restaurant stocks come back to earth

This post is part of the On the Margin blog.

So much for 2015 being a good year for restaurant stocks.

For the most part, restaurant stocks are down this year after a tough third quarter in which restaurant stocks lost a lot of ground. Slightly more than half of the stocks we track are now down for the year, according to a Nation’s Restaurant News analysis.

The average restaurant stock fell by more than 9 percent over the past three months, far more than the 2-percent decline of the broader S&P 500 index over the same period.

And restaurants, on balance, continue to trade at strong values relative to their historical norms. Investors have been keenly interested, for instance, in the potential comeback at McDonald’s Corp., in large part because it has been a relative bargain among restaurant stocks.

Indeed, as we’ve indicated before, investors clearly believe McDonald’s is coming back. QSR chains’ stocks are down more than 10 percent on average this year. But McDonald’s is up more than 10 percent. No other QSR chain is up by more than 1.53 percent since the beginning of the year.

Much of that might be due to all-day breakfast: Investors are likely betting that the addition of McMuffins or biscuit sandwiches in the morning could generate sales in the coming quarters.

Investors also have a mixed view of some newly public companies. Shake Shack, for instance, remains more than double the price of its January IPO, but is down nearly 30 percent in the quarter.

The other fast-casual burger chain to go public, Habit Burger, is down 27 percent this year, though it remains above its IPO price from late last year.

Wingstop rose nearly 50 percent from its IPO price from earlier this year, and then largely stayed there, barely moving in the quarter.

Dave & Buster’s, which didn’t have nearly the hype as the other chains, is trading at more than double its IPO price from last year after rising more than 41 percent so far this year. The casual-dining chain has surprised investors with routinely strong quarterly performance since its offering last year.

Other recent IPOs haven’t been so fortunate. Fogo de Chao, El Pollo Loco and Noodles & Company are all trading below their IPO prices amid disappointing sales results. In a market in which restaurants are highly valued, investors are punishing any growth chain that shows weakness.

Still, the worst performing restaurant stock this year has been Famous Dave’s, which is off more than 54 percent amid tough sales results and a massive shakeup in management.

The best performing stock outside the recent IPOs was the Tex-Mex casual-dining chain Chuy’s, which is up nearly 69 percent this year thanks to strong financial performance.

For the most part, however, stock performances have been what you’d expect: Strong sales are generating strong stocks among pizza chains (up 17 percent year to date) and they’re skeptical about casual dining (down 5 percent). Fast-casual concepts continue to roll along (up 7 percent) along with coffee concepts and family dining chains (both up 4 percent).

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

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