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Top 3 Profitable Restaurant Stocks to Help Navigate November

The restaurant industry is expected to enjoy robust demand. Moreover, the advancement of delivery services has widened the industry's horizons. So, fundamentally strong restaurant stocks Luckin Coffee (LKNCY), Domino's (DPUKY), and Nathan's (NATH) might be profitable buys for investors this month. Read more...

The restaurant industry has grown significantly, driven by changing spending habits. The rise of social media and the evolution of delivery options have also bolstered the restaurant industry. So, I think investors could consider grabbing top restaurant stocks Luckin Coffee Inc. (LKNCY), Domino's Pizza Group plc (DPUKY) and Nathan's Famous, Inc. (NATH) for solid returns this month.

This year, the restaurant industry experienced a recovery after facing challenges for three years, including the impact of the pandemic on consumer dining habits. This revival was supported by factors such as reduced inflation in food prices, improvements in the labor market, and smoother supply chain operations for restaurant operators.

Moreover, U.S. consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged 0.7% last month after an unrevised 0.4% rise in August, the Commerce Department's Bureau of Economic Analysis reported. Economists polled by Reuters had forecast spending gain of 0.5%.

The US Food market is valued at $974.90 billion this year and is expected to grow at a CAGR of 3.8% until 2028. The Confectionery & Snacks segment leads at $303.80 billion. Online sales are projected to contribute 9.7% of total revenue in 2023.

Furthermore, the global restaurant industry is propelled by dynamic shifts in consumer preferences, coupled with an increasing desire for diverse and innovative culinary experiences. The integration of technology, such as social media trends, digital payment options and online ordering, has expanded the reach of restaurants and made their services more accessible to a broader audience.

The global food market is projected to reach $9.36 trillion this year and grow at a CAGR of 6.7% through 2028. Online sales are expected to contribute 3.7% of total revenue by 2023.

Considering these conducive trends, let’s look at the fundamentals of the three best  Restaurants stocks, starting with number 3.

Stock #3: Luckin Coffee Inc. (LKNCY)

Headquartered in Xiamen, the People's Republic of China, LKNCY is a retail company that offers freshly brewed drinks and pre-made food items, including a diverse range of coffees, teas, and snacks. Notable for its digital presence, the company operates through various store formats and provides innovative products like Luckin Pop premium instant coffee. Beyond retail, LKNCY offers technical services and manufactures materials for its products.

LKNCY’s trailing-12-month gross profit margin of 58.78% is 64.5% higher than the industry average of 14.64%. Its 23.86% trailing-12-month EBIT margin is 97.7% higher than the 7.41% industry average.

For the third quarter ended September 30, 2023, LKNCY generated total net revenues of $986.85 million, up 84.9% from the previous-year quarter. Its non-GAAP operating income and net income grew 47.8% and 122.2% year-over-year to $140.55 million and $156.79 million.

Also, the company reported cash and cash equivalents and restricted cash at the end of the period of $567.57 million, up 3.7% year-over-year.

Analysts expect LKNCY’s revenue and EPS to grow 43.7% and 32.2% year-over-year to $5.02 billion and $2.29 for the fiscal year ending December 2024.

The stock has soared 71.9% over the past year and 47.6% year-to-date to close the last trading session at $32.51.

LKNCY’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

LKNCY has a B grade for Growth and Quality. Within the B-rated Restaurants industry, it is ranked #6 out of 45 stocks.

In addition to the POWR Ratings stated above, one can access LKNCY’s additional Value, Stability, and Sentiment ratings here.

Stock #2: Domino's Pizza Group plc (DPUKY)

DPUKY is the UK’s leading pizza brand and a major player in the Irish market. It owns, operates, and franchises Domino’s stores in the UK and the Republic of Ireland. The company rents out properties and equipment to franchisees.

DPUKY’s trailing-12-month gross profit margin of 45.81% is 28.2% higher than the industry average of 35.74%. Its 16.34% trailing-12-month EBIT margin is 120.6% higher than the 7.41% industry average.

On November 3, 2023, DPUKY announced that it was undergoing a significant shift by expanding its food offerings through Uber Eats in various markets. Despite the importance of maintaining a direct connection with customers, the move aims to tap into a different demographic—UberEats customers with a higher income level.

This strategic shift is seen as an effort to broaden DPUKY's customer base. The company is taking steps to protect its franchisees during this transition.

With a four-year average dividend yield of 2.86%, DPUKY pays $0.25 annually as dividends, which translates to a yield of 1.86% on the prevailing price level.

During the third quarter ended September 24, 2023, DPUKY's system sales amounted to £363.70 million ($445.48 million), up 5.5% year-over-year. Its total orders amounted to 16.70 million, which includes significant digital progress of 8.70 million active app customers, up 55% year-over-year.

The company's expectation is to achieve underlying EBITDA in the range of £132 million ($161.68 million) to £138 million ($169.02 million) for the fiscal year 2023.

Street expects DPUKY's revenue to grow 11.8% year-over-year to $800.01 million for the fiscal year 2023.

Shares of DPUKY increased 53.3% over the past year and 21.4% year-to-date to close the last trading session at $8.51.

DPUKY’s POWR Ratings reflect this sound outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

DPUKY has an A grade for Stability and a B for Quality. Within the same industry, it is ranked second.

Click here for DPUKY’s additional Growth, Value, Momentum, and Sentiment ratings.

Stock #1: Nathan's Famous, Inc. (NATH)

NATH is a key player in the foodservice industry, owning and franchising restaurants under the Nathan's Famous brand. It sells branded products through various channels, including retail and foodservice, with license agreements for hot dogs and other meat products. The company is renowned for its iconic hot dogs and offers a diverse product line, including French fries and hors d'oeuvres.

NATH’s trailing-12-month gross profit margin of 36.44% is 1.9% higher than the industry average of 35.74%. Its 24.81% trailing-12-month EBIT margin is 235% higher than the 7.41% industry average.

NATH pays an annual dividend of $2 annually, that translates to a yield of 3.05% on the current market price. Its four-year average dividend yield is 2.48%. Moreover, the company has raised its dividend payouts at a CAGR of 50.8% over the past five years.

In the twenty-six weeks ended September 30, NATH’s total revenues rose 4.5% year-over-year to $80.73 million. Its net income grew marginally from the previous year's quarter to $13.10 million. It generated income from operations and adjusted EBITDA of $20.57 million and $21.81 million, respectively.

The stock has soared marginally over the past year to close the last trading session at $65.15.

NATH’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

NATH has an A grade for Quality and a B for Sentiment. Within the same industry, it is ranked first.

To see NATH’s additional POWR Ratings for Growth, Value, Momentum, and Stability, click here.

What To Do Next?

Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:

3 Stocks to DOUBLE This Year >

LKNCY shares were trading at $32.01 per share on Tuesday morning, down $0.50 (-1.54%). Year-to-date, LKNCY has gained 45.37%, versus a 18.74% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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