Despite macroeconomic challenges, the restaurant industry looks well-positioned for growth due to easing inflation, increased consumer spending, and rapid digitization. Therefore, quality restaurant stocks Ark Restaurants Corp. (ARKR), Carrols Restaurant Group, Inc. (TAST) and Nathan’s Famous, Inc. (NATH) could be wise additions to your portfolio now.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the restaurant industry.
Technology is revolutionizing the restaurant industry, transforming interactions, transactions, and experiences. Online ordering, delivery platforms, self-service kiosks, digital menus, mobile apps, and social media enable restaurants to connect with customers, promote offerings, and gather feedback for service refinement.
Moreover, generative AI is revolutionizing the restaurant industry, enhancing operations and customer experience through automated order-taking, personalized recommendations, and AI-powered chefs.
The global fast-food industry is expected to reach $797.70 billion in 2023, with the US market expected to be $296.60 billion amid robust demand. This expansion can be attributed to a number of factors, including changing consumer preferences, urbanization, and the convenience provided by fast-food restaurants.
The global food and beverage sector is predicted to grow at a 6.3% CAGR to $9.23 trillion by 2027. Food and beverage sales have increased steadily in recent years. Despite some considerable ups and downs, this sector is gradually heading toward innovation. The sector is now incorporating cutting-edge technology to create new trends.
In addition, the United States full service restaurants market is predicted to reach $554.12 billion by 2029, increasing at an 11.2% CAGR.
In light of these encouraging trends, let’s look at the fundamentals of the three top-rated B-rated Restaurants stocks, beginning with number 3.
Stock #3: Ark Restaurants Corp. (ARKR)
ARKR owns and operates restaurants, bars, fast-food concepts, and catering services primarily in major cities and tourist destinations across the United States.
ARKR’s trailing-12-month EV/Sales of 0.80x is 29.3% lower than the industry average of 1.13x. Its trailing-12-month Price/Sales of 0.29x is 65.1% lower than the industry average of 0.84x.
ARKR’s trailing-12-month asset turnover ratio of 1.01x is 1.5% higher than the 1x industry average.
For the fiscal third quarter ended July 1, 2023, ARKR’s total revenues amounted to $51.05 million, while its operating income came in at $3.64 million. It’s net income and EPS came in at $3.20 million and $0.88.
However, its total current liabilities came in at $27.16 million for the period that ended July 1, 2023, compared to $34.88 million for the period that ended October 1, 2022.
Shares of ARKR has lost marginally intraday to close the last trading session at $15.21.
ARKR’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ARKR also has an A grade for Value and a B for Sentiment and Momentum. It is ranked #20 out of 45 stocks in the A-rated Restaurants industry. Click here for the additional POWR Ratings for Growth, Stability and Quality for ARKR.
Stock #2: Carrols Restaurant Group, Inc. (TAST)
TAST, through its subsidiaries, operates as a restaurant company in the U.S. The company runs as a Burger King and Popeyes franchisee.
TAST’s forward EV/Sales of 0.85x is 25.9% lower than the industry average of 1.15x. Its forward Price/Sales of 0.21x is 75.1% lower than the industry average of 0.82x.
TAST’s trailing-12-month asset turnover ratio of 1.14x is 14.2% higher than the 1x industry average.
TAST’s restaurant sales increased 7.2% year-over-year to $475.76 million for the third quarter that ended October 1, 2023. Its adjusted EBITDA grew 136.9% from the year-ago value to $41.87 million. The company’s adjusted net income was $9.99 million and $0.16 per share, compared to an adjusted net loss of $7.29 million and $0.14 per share in the same period of 2022.
Street expects TAST’s revenue to increase 8.2% year-over-year to $1.87 billion for the year ending December 2023. Its EPS is expected to come in at $0.48 for the same period. It surpassed EPS estimates in all four trailing quarters. Over the past year the stock has gained 348.2% to close the last trading session at $7.44.
It’s no surprise that TAST has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Sentiment and a B for Growth and Value. It is ranked #4 in the same industry.
Beyond what is stated above, we’ve also rated TAST for Stability, Momentum and Quality. Get all TAST ratings here.
Stock #1: Nathan’s Famous, Inc. (NATH)
NATH operates in the food service industry as an owner of franchise restaurants under Nathan’s Famous brand name. The company also sells products bearing Nathan’s Famous trademarks through various distribution channels.
NATH’s trailing-12-month EV/EBITDA of 9.23x is 11.5% lower than the industry average of 10.42x. Its trailing-12-month EV/EBIT of 9.57x is 29.4% lower than the industry average of 13.56x.
NATH’s trailing-12-month ROTA of 29.92% is 670.3% higher than the industry average of 3.88%. Its trailing-12-month ROTC of 34.79% is 478.6% higher than the industry average of 6.01%.
For the first half ended September 24, 2023 NATH’s total revenues increased 4.5% year-over-year to $80.73 million. Its net income increased marginally from the previous year’s quarter to $13.10 million. It generated income from operations and adjusted EBITDA of $20.57 million and $21.81 million, respectively.
The stock has gained 3.9% over the past year to close the last trading session at $66.
NATH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked first in the same industry. It has an A grade for Quality and a B for Sentiment. To see additional NATH’s ratings for Growth, Value, Momentum and Stability, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
TAST shares were trading at $7.31 per share on Wednesday afternoon, down $0.13 (-1.75%). Year-to-date, TAST has gained 437.50%, versus a 18.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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