Small-cap restaurant stocks are well known for their abilities to display explosive growth potential and recent macro trends signal potential buying opportunities throughout the sector. Last year, the restaurant industry showed its best annual sales performances since 2015, and the December figures indicated seventh straight months of positive same-store sales growth (at 2%). Numbers for the fourth-quarter were also positive (with growth rates of 1.4%), and investors looking for growth opportunities in mature markets might consider these three stocks to capitalize on these trends in 2019.
BJ’s Restaurants, Inc. (NASDAQ: BJRI)
BJ’s Restaurants (NASDAQ: BJRI) operates conventional restaurants as well as restaurants with an added brewery component in roughly 200 locations throughout the U.S.
The stock has fallen sharply from its August 31st highs (at $75.80 per share), and is now trading lower by 33.88%. Rising foot traffic has improved the company’s same-store sales figures, and BJ’s has beaten analyst estimates for EPS in each of the last four quarters. Revenues have also risen steadily in the last four years and the recent declines have normalized the stock’s P/E ratio (TTM), at 17.58.
Wingstop, Inc. (NASDAQ: WING)
Recent pullbacks in share prices for Wingstop, Inc. (NASDAQ: WING) have been relatively tame when compared to the activity seen throughout the restaurant industry toward the end of last year. After hitting highs of $74.40 in the middle of October, WING has quickly recovered from its short-term losses and looks poised to make another break higher (likely surpassing its all-time highs if macro trends remain supportive).
Part of the reasoning behind this resilience lies in the company’s impressive ability to grow its revenues and stabilize its EPS figures. Wingstop reported revenues of $67.45 million in 2014, and this number more than doubled to $105.55 million in 2018. Earnings have also surged during this period, strengthening the arguments for long positions. Some degree of caution appears warranted, however, as the stock’s P/E Ratio (TTM) now stands at a lofty 64.91.
El Pollo Loco (NASDAQ: LOCO)
Even more impressive is the steady rally which has developed in El Pollo Loco (NASDAQ: LOCO) share prices over the last year. The stock has rallied by 68.41% during this timeframe and shareholders saw very little in the way of selling pressure when the rest of the market was collapsing near the end of 2018.
In spite of these moves higher, the stock is still trading at relatively reasonable valuations (with a price-to-sales figure of 0.97). The company’s revenue figure grew to $401.7 million in 2017, and the stable trend in revenues suggests continued growth for the 2018 reporting period. Analyst ratings on the stock are evenly divided between “buys” and “holds” and this suggests that the stock should continue to remain supported on any volatility-driven dips dictated by bearish activity in the broader markets. Declines in the company’s EPS figures for 2017 may have diminished some of the market’s expectations for the 2018 reporting period, so any upside surprises in EPS could send LOCO stock prices back toward its all-time highs are $18.47.
Disclaimer: The author and Spotlight Growth has no positions in any of the stocks mentioned in this article. Nor does either party currently have any relationship, or any other conflicts of interest, with any of the companies mentioned in this article. This content is meant for informational and entertainment purposes only and should not be meant as a recommendation to buy or sell any securities. Please visit a licensed financial representative to determine what investments are right for you.
Article By: Richard Cox