Investing in restaurant stocks can be a viable option for shareholders. Over the years, shares of quick-service restaurants have delivered market-crushing returns as they are fairly recession resistant. Two such rock-solid restaurant stocks are Chipotle Mexican Grill (NYSE:CMG) and Restaurant Brands International (TSX:QSR). Let’s see why you should invest in these two quality growth stocks right now.
The bull case for Chipotle Mexican Grill stock
In the last five years, shares of Chipotle Mexican Grill have returned 341% to shareholders, outpacing the broader markets by a comfortable margin. Valued at US$72.6 billion by market cap, Chipotle Mexican Grill reported revenue of US$2.5 billion and adjusted earnings of US$10.36 per share in the fourth quarter (Q4), both of which surpassed consensus estimates, driving the stock higher by 8% following its results.
Chipotle increased sales by 15.4% year over year in Q4 as same-store sales grew by 8.4%. The company’s transaction count grew 7.4%, which suggests footfalls at its restaurants remain high despite inflation and other macro headwinds.
In order to combat rising costs, Chipotle was forced to increase menu prices multiple times in the last eight quarters. Despite the uptick in product prices, demand remains strong, indicating the company enjoys pricing power.
A focus on cost optimization allowed Chipotle to increase net income by 26% to US$283 million in Q4. Chipotle emphasized its food, beverage, packaging and labour costs declined as a percentage of sales in the last year.
In 2023, CMG opened 271 new restaurants, taking its store count to 3,437. The company expects to end its total restaurant count to 7,000 restaurants eventually, generating US$28 billion in annual sales.
Priced at 49.55 times forward earnings, CMG stock might seem expensive. Comparatively, analysts expect earnings to rise by 23.6% annually in the next five years.
Is Restaurant Brands International stock a good buy?
A domestic giant, Restaurant Brands International is a holding company engaged in the operation of chains such as Tim Hortons, Burger King, Popeyes, and Firehouse Subs. Recently, it announced plans to buy Carrols Restaurant Group for $1 billion, and QSR’s chief executive officer, Josh Kobza, explained, “The strategic merits of this acquisition are very compelling and consistent with our objective to invest our capital in long-term, high-return opportunities.”
With more than 19,000 locations globally, Burger King is the largest segment for QSR, accounting for 60% of the total store count. Restaurant Brands International knows Burger King is crucial for its top-line growth and announced the “Reclaim the Flame” plan in late 2022. Here, it aims to modernize Burger King locations, making it relevant to consumers while gaining market share over McDonald’s, the original incumbent.
Restaurant Brands International will invest US$400 million according to this plan, which includes US$150 million towards ads and digital investments, while $250 million is allocated towards enhancing restaurant technology, kitchen equipment, and remodels.
The growth story for Restaurant Brands is far from over, as Tim Hortons is eying aggressive expansion in emerging markets such as India and China. Priced at 21.5 times forward earnings, QSR stock is quite cheap, given its earnings are forecast to rise by 10.4% annually in the next five years.
