Dividend Stocks

The 3 Best Restaurant Stocks to Buy in July 2024

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Everyone needs to eat, but not everyone wants to cook their own food. Even though people can save money by cooking instead of going out to eat, many people regularly visit restaurants. These establishments can offer a sense of community, and they also make food prep less stressful.

A U.S. Foods survey revealed that 76% of people order takeout or delivery because “it’s more enjoyable to eat at home” with takeout. Almost half of people mentioned they prefer to avoid cooking, and many people also cited convenience and socializing.

While the restaurant industry can be challenging due to relatively low profit margins and turnover, the top restaurants can make it big. Some restaurant stocks have comfortably outperformed big tech companies over several years, and they can cook up some serious returns for your portfolio. Wondering which restaurant stocks are worth monitoring? Let’s take a bite out of some of the top restaurant stocks to buy.

Chipotle (CMG)

Chipolte Mexican Grill sign. Chipolte is a chain of casual dining restaurants specializing in burritos and tacos. CMG stock

Source: Ken Wolter / Shutterstock.com

Recently, Chipotle (NYSE:CMG) completed its stock split and is now valued at approximately $61.58 per share. This fast food restaurant chain has comfortably outperformed the stock market with a 39% year-to-date (YTD) gain and a 326% surge over the past five years. 

While many restaurants have been hit by inflation, Chipotle continues to march ahead despite raising prices for its food multiple times over the past two years. The Mexican Grill chain reported 14.1% year-over-year (YOY) revenue growth and 23.2% YOY net income growth in the first quarter. Chipotle remains on target for opening 285-315 restaurants this year and wrapped up the first quarter by opening an additional 47 restaurants. 

The restaurant has plenty of staying power and more pricing flexibility than most fast food restaurants due to its emphasis on health. CMG offers some of the healthiest food choices among fast food restaurant chains, and that comes with a premium. So far, the business model has worked out well for long-term investors.

Texas Roadhouse (TXRH)

An outside and closeup view of a Texas Roadhouse, Inc. (TXRH) sign

Source: Jonathan Weiss / Shutterstock.com

Texas Roadhouse (NASDAQ:TXRH) offers growth at a reasonable price. The steakhouse chain trades at a 35 P/E ratio and offers a 1.40% yield for investors. Shares are up by 46% YTD and have gained 224% over the past five years.

The company had a strong first quarter that helped to justify recent gains. Revenue increased by 12.5% YOY while net income jumped by 31.0% YOY. Comparable sales remained elevated and were 8.4% higher than the same quarter last year. Nine company-owned locations and three franchise restaurants opened in the quarter. Texas Roadhouse has 753 total restaurants (644 company-owned and 109 franchises).

Moreover, Texas Roadhouse has plenty of momentum behind it. However, its valuation leaves it less vulnerable to sharp pullbacks than other restaurant stocks that have soared this year. The restaurant chain offers affordable meat which has attracted many customers. High comparable sales growth suggests many customers regularly dine at the company’s steakhouse chains.

Wingstop (WING)

A Wingstop (WING) restaurant storefront in Columbus, Ohio.

Source: Eric Glenn / Shutterstock.com

Wingstop (NASDAQ:WING) has enjoyed a 69% ascent over the past year and is up by 350% over the past five years. The restaurant chain prioritizes buffalo wings and uses decor with a 1930s and 1940s aviation theme across its locations. 

First quarter results indicate that the company is still growing at a fast rate. Revenue grew by 34.1% YOY while net income jumped by 83.5% YOY. Wingstop closed the quarter with a 19.7% net profit margin and opened 65 new restaurants in the quarter. That’s even more than Chipotle.

Making things even better, Wingstop reported 21.6% domestic same stores sales growth. That means many people are visiting Wingstop, becoming returning customers and bringing their friends. It bodes well for long-term investors and makes up for the relatively low 0.21% yield. Granted, Wingstop has a double-digit dividend growth rate and has occasionally given out special dividends to its long-term investors.

On this date of publication, Marc Guberti held a long position in TXRH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Marc Guberti is a finance freelance writer at InvestorPlace.com who hosts the Breakthrough Success Podcast. He has contributed to several publications, including the U.S. News & World Report, Benzinga, and Joy Wallet.

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