Restaurant Brands trades at $67.34 and has moved in lockstep with the market. Its shares have returned 10.6% over the last six months while the S&P 500 has gained 7.1%.

Is now the time to buy Restaurant Brands, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Restaurant Brands Not Exciting?

We're cautious about Restaurant Brands. Here are three reasons why QSR doesn't excite us and a stock we'd rather own.

1. Shrinking Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Analyzing the trend in its profitability, Restaurant Brands’s operating margin decreased by 3.6 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 26.3%.

2. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Restaurant Brands’s margin dropped by 3.3 percentage points over the last year. This decrease came from the higher costs associated with opening more restaurants.

3. High Debt Levels Increase Risk

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Restaurant Brands’s $15.72 billion of debt exceeds the $899 million of cash on its balance sheet. Furthermore, its 5× net-debt-to-EBITDA ratio (based on its EBITDA of $2.80 billion over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Restaurant Brands could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Restaurant Brands can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

Final Judgment

Restaurant Brands isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 17.8× forward P/E (or $67.34 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Like More Than Restaurant Brands

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.

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