Restaurants are go-to meeting hubs for friends, family, and colleagues. Still, their demand can ebb and flow with the broader economy because consumers can always cook meals at home when times are tough, and the market seems to be baking in a downturn for the industry - over the past six months, it has pulled back by 2%. This performance is a far cry from the S&P 500’s 17.7% ascent.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. With that said, here is one restaurant stock poised to generate sustainable market-beating returns and two we’re swiping left on.

Two Restaurant Stocks to Sell:

Restaurant Brands (QSR)

Market Cap: $20.81 billion

Formed through a strategic merger, Restaurant Brands International (NYSE: QSR) is a multinational corporation that owns three iconic fast-food chains: Burger King, Tim Hortons, and Popeyes.

Why Does QSR Give Us Pause?

1. Estimated sales growth of 4.5% for the next 12 months implies demand will slow from its six-year trend
2. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 6.8 percentage points
3. High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $63.58 per share, Restaurant Brands trades at 16.2x forward P/E. Check out our free in-depth research report to learn more about why QSR doesn’t pass our bar.

Kura Sushi (KRUS)

Market Cap: $1.00 billion

Known for its conveyor belt that transports dishes to diners, Kura Sushi (NASDAQ: KRUS) is a chain of sushi restaurants serving traditional Japanese fare with a touch of modernity and technology.

Why Is KRUS Not Exciting?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Cash-burning history and the downward spiral in its margin profile make us wonder if it has a viable business model
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Kura Sushi’s stock price of $83.30 implies a valuation ratio of 45.6x forward EV-to-EBITDA. To fully understand why you should be careful with KRUS, check out our full research report (it’s free).

One Restaurant Stock to Buy:

Wingstop (WING)

Market Cap: $7.67 billion

The passion project of two chicken wing aficionados in Texas, Wingstop (NASDAQ: WING) is a popular fast-food chain known for its flavorful and crispy chicken wings offered in a variety of sauces and seasonings.

Why Are We Bullish on WING?

1. Aggressive strategy of rolling out new restaurants to gobble up whitespace is prudent given its same-store sales growth
2. Average same-store sales growth of 14.6% over the past two years indicates its restaurants are resonating with diners
3. Excellent operating margin of 25.5% highlights the efficiency of its business model

Wingstop is trading at $275.75 per share, or 63.4x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

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