Top Restaurant Stocks for Q2 2023

Top restaurant stocks for the second quarter include Carrols Restaurant Group Inc. (TAST), Wingstop Inc. (WING), and Luckin Coffee (LKNCY). The share prices of all three have risen by more than 150% in the past year.

Restaurant stocks, as represented by the Dow Jones U.S. Restaurants & Bars Index, have risen 27% in the past 12 months compared with a 5% gain for the Russell 1000.

Here are the top three restaurant stocks with the best value, the fastest growth, and the most momentum. All numbers below are as of May 22.

Best Value Restaurant Stocks

These are the restaurant stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

Best Value Restaurant Stocks
  Price ($) Market Cap ($B) 12-Month Trailing P/E Ratio
Arcos Dorados Holdings Inc. (ARCO) 8.99 1.9 12.3
Dine Brands Global Inc. (DIN) 65.69 1.0 12.6
Denny’s Corp (DENN) 11.34 0.6 12.7

Source: YCharts

  • Arcos Dorados Holdings Inc.: Arcos Dorados Holdings is a McDonald’s franchisee based in Uruguay. It has the exclusive right to own, operate, and franchise McDonald’s restuarants in 20 countries across Latin America and the Caribbean. With 2,250 restaurants, it is the world’s largest independent McDonald’s franchisee.
  • Dine Brands Global Inc.: Dine Brands owns, operates, and franchises various restaurants such as Applebees, IHOP, and Fuzzy’s Taco Shop. On May 3, The company’s net income rose 10% in the first quarter of 2023, despite a 7% decline in revenue. In December 2022, Dine Brands acquired Fuzzy’s Taco Shop, a casual Mexican-themed restaurant, from Experiential Brands LLC, for $80 million.
  • Denny’s Corp.: Denny’s operates a franchised full-service restaurant chain. Denny’s restaurants offer all-day breakfast, burgers, sandwiches, salads, and various beverages, appetizers, and desserts.

Fastest Growing Restaurant Stocks

These are the top restaurant stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth.

Both sales and earnings are critical factors in the success of a company. Therefore ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one or the other figure unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of over 1,000% were excluded as outliers.

Fastest Growing Restaurant Stocks
  Price ($) Market Cap ($B) EPS Growth (%) Revenue Growth (%)
TH International Ltd. (THCH) 3.18 0.5 N/A (see company description) 51
Wingstop Inc. (WING) 204.24 6.1 79 43
Kura Sushi USA Inc. (KRUS) 71.08 0.8 N/A (see company description) 40

Source: YCharts

  • TH International Ltd.: TH International is a subsidiary of Tim Hortons, a popular Canadian coffee shop. The company operates Tim Hortons locations exclusively in China. Note TH International doesn’t have an EPS growth figure in the table above because the company reported a net loss per share in the most recent quarter.
  • Wingstop Inc.: Wingstop has franchise-owned restaurants that serve cook-to-order chicken wings and other related products. Wingstop added 37 new restaurants in the first quarter. Net income rose 81% year-over-year on a 43% increase in revenue in the same period. The company’s share price has posted a sustained rally, rising to approximately $200 a share in early May 2023 from a 52-week low of about $70 per share in May 2022.
  • Kura Sushi USA Inc.: Kura Sushi is the American subsidiary of a Japanese chain of restaurants featuring revolving sushi conveyor belts. The company operates 45 locations across 14 states and Washington, D.C. Kura Sushi opened three new locations in the first quarter and reported comparable store sales increased 17% from the same period a year ago. Note Kura Sushi USA doesn’t have an EPS growth figure in the table above because the company reported a net loss per share in the most recent quarter.

Restaurant Stocks With the Most Momentum

These are the restaurant stocks that had the highest total return over the last 12 months.

Restaurant Stocks With the Most Momentum
  Price ($) Market Cap ($B) 12-Month Trailing Total Return (%)
Carrols Restaurant Group Inc. (TAST) 5.72 0.3 306
Wingstop Inc. (WING) 204.24 6.1 180
Luckin Coffee Inc. (LKNCY) 20.87 5.8 154
Russell 1000 N/A N/A 5
Dow Jones U.S. Restaurants & Bars Index N/A N/A 26

Source: YCharts

  • Carrols Restaurant Group Inc.: Carrols Restaurant Group is a franchise business that operates 65 Popeyes and over 1,000 Burger King Restaurants. On May 1, Deborah M. Derby became president and CEO, succeeding Paulo A. Pena, who passed away late last year. The company swung to a profit in the first quarter, with net income of $864,000 compared with a net loss of over $21 million a year ago.
  • Wingstop Inc.: See company description above.
  • Luckin Coffee Inc.: Luckin Coffee is a China-based holding company that operates a coffee retail business. The company operates primarily through mobile apps and pick-up stores, selling fresh-brewed drinks, juices, and light meals.

Analyzing Restaurant Stocks

Here are some terms and metrics used in the restaurant industry that an investor should understand to evaluate restaurant stocks:

  • System sales: Restaurant companies have several different operating structures, including company-owned stores, franchised stores, or a mixture of both. So “system sales” refers to combined sales across all operating outlets. Tracking system sales helps in understanding how the restaurant chain (company-owned and franchised stores) is performing as a whole.
  • Revenue: For the restaurant industry, revenue is slightly different than system sales. A restaurant chain’s revenue is the aggregate franchising fee that it earned from its franchises, but not their sales revenue, plus the revenue it earned from company-owned stores.
  • Comparable sales: Restaurant chains increase revenue by opening new stores and by expanding sales of their existing stores. The comparable-sales figure tracks the latter: sales from stores that already existed a year ago but not the revenue from new stores. This is because newly opened outlets generally aren’t profitable and lack customer traffic at first. Also, comparable-sales growth shows how much the company’s revenue from existing stores is increasing.

Trends in Restaurant Stocks

Many trends in the restaurant industry are shaped by changing customer preferences and new technologies, and stock performance will likely reflect how well the companies adapt to each. These trends include:

  • Online ordering and food delivery: Thanks to apps like Uber Eats and Grubhub, it’s now easier than ever for consumers to get their favorite foods delivered to their doorstep. And as more people are working from home, the demand for food delivery and takeout services is only increasing.
  • Ghost kitchens: These are commercial kitchens that prepare food exclusively for delivery or takeout orders without a dine-in option. Ghost kitchens are becoming increasingly popular, as they allow restaurants to focus solely on takeaway orders and avoid the expense of in-house service.
  • Healthy eating: Consumers are becoming more health conscious, and they’re beginning to demand healthier options from restaurants. These include more plant-based proteins, salads, and grain bowls on menus across the country.
  • Technology: Technology is changing the way restaurants operate—customers are accustomed to using tools like Yelp and Google Maps to find nearby eateries and read reviews before going out to eat. As a result, restaurants have made online ordering systems, kitchen automation devices, and point-of-sale systems integral to operations. Tech innovations will continue to play a dominant role in the industry, with robotics and drone delivery ahead.
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