The current year promises an exhilarating phase for the restaurant industry, characterized by emerging trends and inventive approaches aimed at addressing the ever-evolving customer preferences.
Hence, it seems wise to capitalize on the industry’s expansion prospects and look into restaurant stocks Biglari Holdings Inc. (BH), Nathan's Famous, Inc. (NATH), and Rave Restaurant Group, Inc. (RAVE), which hold the potential to generate solid returns. Let’s understand this in detail.
The restaurant industry is a global, highly social community, and a three-year break from face-to-face gatherings has fostered an even stronger desire for human connection. The National Restaurant Association (NRA) reports that 84% of consumers are going out to a restaurant with family and friends for a better use of their leisure time.
The surge in urbanization is also driving an increasing cohort of busy professionals yearning for swift, convenient dining choices. In June, eating and drinking establishments notched $88.9 billion in sales, seasonally adjusted, as per preliminary figures from the U.S. Census Bureau.
The industry also foresees a substantial boost from the implementation of smart tech solutions. Smart tables, enabling food ordering, bill payment, and AI-powered chatbots that answer queries and provide recommendations are poised to revolutionize the restaurant landscape.
Innovative restaurant concepts are further elevating the industry's potential. Yelp's 2023 State of the Restaurant Industry Report reveals a remarkable 105% surge in new pop-up eateries from April 2022 to March 2023. These findings underscore the industry's dynamism and the escalating allure of unique dining experiences.
According to future market insights, the full-service restaurant market will be worth $1.51 trillion in 2023. Moreover, it is expected to grow at a CAGR of 2.5%, rising to $1.93 trillion by 2033.
To that end, fundamentally strong restaurant stocks BH, NATH, and RAVE could make ideal additions to your portfolio.
Let’s now delve into the fundamentals of the featured stocks.
Biglari Holdings Inc. (BH)
BH engages in several businesses, such as property and casualty insurance, media licensing, restaurants, and oil and gas. It runs restaurants through Steak n Shake Inc. and Western Sizzlin Corporation. The company's insurance covers property/casualty. While Southern Oil operates offshore Gulf of Mexico properties.
BH’s trailing-12-month gross profit margin of 42.84% is 21.4% higher than the 35.30% industry average. The stock’s trailing-12-month EBITDA margin of 23.63% compares to the industry average of 10.65%. Moreover, its trailing-12-month net income margin of 8.89% is 112.3% higher than the 4.19% industry average.
For the first quarter that ended March 31, 2023, BH’s total revenues increased 5.6% year-over-year to $90.18 million. Its net earnings stood at $65.54 million compared to a net loss of $298 thousand in the prior year’s period.
Also, net earnings per average equivalent Class A share came in at $222.28, compared to a loss per share of $0.98 in the previous year’s quarter. As of March 31, 2023, BH’s current assets stood at $163.36 million, compared to $150.65 million as of December 31, 2022.
Over the past three years, BH’s EBITDA grew at a CAGR of 6.9%. Its normalized net income increased at a 32.4% CAGR while operating income rose at a CAGR of 6.9% during the same period.
Shares of BH have gained 71.1% over the past year to close the last trading session at $203.50.
BH’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
BH has a B grade for Growth, Momentum, Sentiment, Value, and Stability. It has topped the B-rated 44-stock Restaurants industry.
In addition to the POWR Ratings I’ve just highlighted, you can see BH’s rating for Quality here.
Nathan's Famous, Inc. (NATH)
NATH operates as a licensor, wholesaler, and retailer for Nathans branded products, notably Nathans Beef Hot Dogs. Its segments encompass Branded Product Program; Product Licensing; and Restaurant Operations. The company's products are available in approximately 79,000 locations.
NATH’s trailing-12-month EBITDA margin of 27.20% is 155.4% higher than the 10.65% industry average. Its trailing-12-month net income margin of 15% is 258.3% higher than the 4.19% industry average. Also, the stock’s trailing-12-month levered FCF margin of 12.36% compares to the industry average of 3.93%.
During the fourth quarter that ended March 26, 2023, NATH’s total revenues increased 10.7% year-over-year to $27.41 million. Its adjusted EBITDA grew 10.6% from the year-ago value to $7.10 million. Moreover, the company’s net income and EPS rose 51.3% and 53.8% year-over-year to $3.27 million and $0.80, respectively.
NATH’s revenue increased at a CAGR of 8.2% over the past three years. Its EBITDA and net income grew at CAGRs of 7.8% and 13.5%, respectively. Moreover, its EPS and levered free cash flow rose at CAGRs of 14.6% and 23%, respectively, during the same time frame.
Over the past year, the stock has gained 46.7% to close the last trading session at $80.76.
NATH’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
NATH has an A grade for Quality and a B for Growth, Momentum, and Sentiment. It is ranked #2 out of 44 stocks within the Restaurants industry.
Click here to access additional NATH ratings (Value and Stability).
Rave Restaurant Group, Inc. (RAVE)
RAVE manages, franchises, licenses, and supplies for Pie Five and Pizza Inn restaurants. It oversees pizza buffet, delivery/carry-out, and express restaurant franchises. Additionally, the company facilitates food, equipment, and supply distribution to its global restaurant network via third-party distributor agreements.
On June 27, RAVE's franchise Pizza Inn, in collaboration with Principal Master Licensee and Development Partner Ginny Singh, inaugurated the first New Zealand Pizza Inn. GJ Restaurants Ltd's Director, Singh, aims to open 10 Pizza Inn restaurants in Auckland within three years, targeting expansion in Manukau, Henderson, and Albany.
Pizza Inn's entry into the New Zealand market, announced through a ten-location franchise agreement, underscores the brand's dedication to global expansion. Also, the company's established buffet-style restaurant model is extended to franchise investors worldwide, showcasing its commitment to growth.
RAVE’s trailing-12-month EBITDA margin of 16.80% is 57.7% higher than the 10.65% industry average. The stock’s trailing-12-month levered FCF margin of 11.85% is 201.8% higher than the 3.93% industry average. Furthermore, its trailing-12-month net margin of 66.57% compares to the industry average of 4.19%.
During the fiscal third quarter (ended March 26, 2023), RAVE’s revenues increased 13.4% year-over-year to $2.97 million. Its cash inflow from operating activities rose 134.9% from the year-ago value to $1.23 million. Also, adjusted EBITDA remained stable at $0.6 million.
As of March 26, 2023, RAVE’s total liabilities came in at $3.82 million, compared to $5.10 million as of June 26, 2022.
Over the past three years, RAVE’s EBITDA grew at a CAGR of 6.6%. Its normalized net income increased at a CAGR of 10.6%, while total assets rose at a CAGR of 14.6% during the same period. Additionally, its levered free cash flow increased at a 24.4% CAGR during the same time frame.
The company’s EPS is expected to grow 10% per annum over the next five years. Shares of RAVE have gained 67.4% over the past year to close the last trading session at $2.21.
RAVE’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
RAVE has an A grade for Quality and a B for Value and Sentiment. It is ranked #4 out of 46 stocks within the same industry.
Click here to access additional RAVE ratings for Growth, Stability, and Momentum.
What To Do Next?
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BH shares were trading at $203.49 per share on Thursday morning, down $0.01 (0.00%). Year-to-date, BH has gained 46.61%, versus a 18.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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