4 stocks to buy as the restaurant industry shows promise
The economy is rapidly reopening and people have started spending more on services than on goods. This has led to increased sales in service-related industries like bars and restaurants, travel and accommodation, and leisure.
Crucially, the restaurant industry, which had been struggling for some time, has finally started to rebound, with sales picking up in recent months. Furthermore, forecasts indicate that the industry will generate higher sales this year and reach pre-pandemic levels. Given this scenario, actions like Dave & Buster’s Entertainment, Inc. CHEEK, BBQ Holdings, Inc. A BARBECUE, Arcos Dorados Holdings Inc. ARCO and Brinker International EAT should perform well in the short term.
Increase in restaurant sales
According to the latest Mastercard SpendingPulse report, Americans are back to spending more on services than on goods. The report said restaurant sales rose 19.1% in March on a year-over-year basis.
The report is part of overall retail sales which rose 8.4% year-over-year in March. Retail sales in March were mainly driven by a surge in services and the restaurant industry had a major role to play.
The pandemic has seen people cut spending on services and shell out more for goods. Indeed, they didn’t have much choice to spend on services due to the COVID-induced lockdown.
As most people stayed indoors for most of 2020 and much of 2021, the restaurant industry became one of the biggest casualties as footfall continued to decline. However, the picture looks quite rosy now, with businesses and industries finally returning to an optimal level of operation.
This has once again seen footfall rise in bars and restaurants, leading to sales.
Industry poised to grow
Over the past year, since COVID-19 restrictions began to ease, the restaurant industry has tried to get back on its feet. However, it has always struggled as several variants of COVID-19 that have popped up from time to time have hampered the smooth functioning of the industry.
However, things finally seem to be back to normal and attendance is up. Still, the industry faces many challenges, with rising costs being one of the main factors.
The price spike has people worried and could impact sales, but so far this has yet to be felt as sales increased in March.
According to a report by the National Restaurant Association, restaurant sales in 2022 will be much better than in 2021. The report suggests that restaurant sales will reach $898 billion in 2022 and return to the pre-pandemic trajectory.
Additionally, the restaurant industry is expected to add 400,000 jobs in 2022 to its already existing 14.9 million jobs. The picture looks much better than a year ago and if things stay that way, the restaurant industry is only likely to grow further.
Given the situation, the ideal would be to invest in restaurant stocks. We shortlisted four restaurant stocks, each carrying a Zacks rank of No. 1 (Strong Buy) or 2 (Buy). You can see the full list of today’s Zacks #1 Rank stocks here.
BBQ Holdings, Inc. operates and franchises barbecue restaurants and blues clubs. BBQ currently has locations and franchises in Minnesota, Wisconsin, Illinois, Iowa, Nebraska, Utah, Maryland and Virginia and has signed development agreements for additional franchise locations. The menu at BBQ Holdings features award-winning grilled and grilled meats, an extensive selection of unique salads, sides, sandwiches and desserts.
BBQ Holdings’ forecast earnings growth rate for the current year is 49.3%. The Zacks consensus estimate for current-year earnings has improved 22.2% over the past 60 days. BBQ sports a No. 1 Zacks rank.
Dave & Buster’s Entertainment, Inc. is one of North America’s leading owners and operators of high-volume venues that combine dining and entertainment for adults and families. The core concept of the PLAY channel is “Eat Drink Play and Watch”, all in one place. As part of the Eat concept, Dave & Buster’s Entertainment offers a wide variety of entrees, burgers, prime steaks and health conscious foods.
Dave & Buster’s Entertainment’s forecast earnings growth rate for the current year is 66.2%. The Zacks consensus estimate for current-year earnings has improved 25.5% over the past 60 days. PLAY sports a #1 Zacks rank.
Brinker International primarily owns, operates, develops and franchises various restaurants under the Chili’s Grill & Bar (Chili’s) and Maggiano’s Little Italy (Maggiano’s) brands. EAT is a preeminent leader in the casual dining bar and grill category. Brinker International has been operating for over 40 years.
Brinker International Entertainment’s expected profit growth rate for the current year is 12.5%. The Zacks consensus estimate for current-year earnings has improved 0.6% over the past 60 days. EAT wears a No. 2 Zacks rank.
Arcos Dorados Holdings Inc. operates as a franchisee of McDonald’s, with its operations spread across Brazil; North Latin America division; South Latin America and Caribbean Division. ARCO also operates quick service restaurants in Latin America and the Caribbean.
Arcos Dorados’ expected profit growth rate for the current year is 62.5%. The Zacks consensus estimate for current-year earnings has improved 21.9% over the past 60 days. ARCO has a #2 Zacks rank.
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