Forget Cara Operations Ltd.! Buy Restaurant Brands International Inc.

Why I prefer Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR) over Cara Operations Ltd. (TSX:CARA).

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The Motley Fool

Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR) is one of the best growth stocks on the TSX. The incredible managers in 3G Capital have a proven formula for same-store sales growth and international expansion. The company has had an amazing run over the last year, but I still think there’s plenty of upside despite the pricey valuation.

Some Fool contributors have been comparing Restaurant Brands to Cara Operations Ltd. (TSX:CARA), which owns many terrific restaurant brands based in Canada. You’ve probably never heard of Cara, but you’ve probably eaten at one of its restaurants, such as Swiss Chalet, Kelsey’s, Milestones, East Side Mario’s, Original Joe’s, or St-Hubert. Canadians love these brands, but is Cara really comparable to Restaurant Brands International?

Restaurant Brands International is an international company with restaurants all over the world, whereas Cara is focused on Canada with most of its locations (59%, in fact) in Ontario, so there’s not much in the way of international diversification. Cara is highly dependent on Ontario’s economy, which is expected to see strong economic growth going forward, but if the growth slows, Cara will feel it.

Another difference is that most of Cara’s restaurants are in casual dining, which requires a customer to be seated and pay a gratuity. Restaurant Brands International is in the fast-food business, where customers order their food at the counter and can choose to eat it on location or take it to go. Casual dining is usually a much more expensive experience than fast food, so in a down economy, fast-food restaurants are heavily favoured over casual dining restaurants.

Both Restaurant Brands International and Cara are considered consumer discretionary stocks and may be susceptible to cyclical swings, but I’d argue that Restaurant Brands International is more of a consumer defensive stock than a discretionary one. People will always eat at Burger King and Tim Hortons, and if there is an economic downturn. I’d expect more people to flock to these restaurants over casual dining restaurants because they’re a lot cheaper to eat at.

Cara is more of a cyclical stock because in the event of an economic downturn, the stock will get crushed as consumers opt for cheaper alternatives.

Takeaway

Cara is cheaper than Restaurant Brand International, but I don’t think it makes sense to compare these two companies. Cara is a primarily a dine-in restaurant operator with locations mainly in Ontario, whereas Restaurant Brands International is a quick-serve-restaurant growth king with an international footprint. If you’re a long-term investor, then I think you’ll do a lot better with Restaurant Brands International because there’s way more upside to be had.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of Restaurant Brands International Inc. The Motley Fool owns shares of RESTAURANT BRANDS INTERNATIONAL INC.

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