When it comes to investing, finding a balance between growth potential and stability is key. One stock that strikes this balance perfectly and has earned a spot in my portfolio for my next $2,500 investment is Restaurant Brands International (TSX:QSR).
With its strong global presence, resilient business model, and growth opportunities, Restaurant Brands looks poised to make slow and steady gains over the long term, which is just what I like.
Here’s why QSR stock remains one of my top picks in this market despite its rather lacklustre performance over the past year (as the chart above shows).
Source: Getty Images
Resilient business model
This current economic climate is one in which I’m more concerned about downside risks than missing rallies in hyper-growth stocks. Valuations have become stretched, even for the most ardent growth investors out there. Accordingly, I think more investors will look to companies like Restaurant Brands with reasonable valuation multiples and strong dividend yields (which should grow over time).
The company’s core business revolves around providing a range of quick-service dining options to patrons around the world. With world-class fast food banners Tim Hortons, Burger King, Popeyes, and a range of other restaurants within the company’s portfolio, Restaurant Brands investors benefit from the durability and sustainability of the company’s cash flow growth profile.
Much of the company’s revenue and earnings growth in recent years has come from pricing power associated with the company’s high-quality brands. However, with this pricing power waning, investors looking for a catalyst to buy into this sector are increasingly having difficulty finding one (the rise of GLP-1 drugs has certainly put pressure on this market as a whole).
That said, for those who expect some economic turbulence on the horizon, investing in a company offering value at the mid to lower end of the market may outperform. If consumers increasingly clutch their purse strings more tightly, any dollars that do get spent are more likely to be funnelled toward one of Restaurant Brands’s locations than a fine dining location.
Growth could begin to accelerate over time
I think one of the key factors that’s likely underappreciated when it comes to Restaurant Brands is the relative consistency of the company’s revenue and earnings growth profile over the long term. Of course, an argument can be made that the secular growth trends that have taken the company on this ride may no longer be there. But for those who believe that global growth factors are more likely to play into the company’s success than domestic sales, this is a restaurant giant with plenty to offer at its current multiple, around 16 times earnings.
I think few companies can offer the kind of growth profile Restaurant Brands is likely to provide over the coming decade, at least in the restaurant sector. For instance, Burger King continues to grow its footprint in markets like India, China and Brazil, where the demand for quick-service restaurants is increasing. Similarly, Tim Hortons has been making inroads in China and the Middle East, while Popeyes has seen success in global markets due to its highly popular chicken sandwich.
Emerging markets present an enormous opportunity for QSR to scale its brands and capture a growing middle-class customer base. These efforts are supported by strategic partnerships with local operators, which help the company adapt to regional preferences and streamline operations.
Bottom line
Overall, Restaurant Brands’s defensive business model, its strong and growing dividend yield, and the potential for sustained long-term growth make this a top stock I think is worthy of my next $2,500 investment.
