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Source: Ignite Restaurant Group.
Restaurant stocks are on fire these days, but let's not assume that all of the growing chains are holding up on Wall Street. In fact, there are a couple of intriguing eateries trading in the single digits.
They're not perfect, of course. You don't trade at a low price without some flaws. However, a few of them have enough good things going for them to make the current low price a dinner bell for opportunistic investors. Let's take a closer look at some of the promising restaurant stocks under $10.
Ignite Restaurant Group
We all make mistakes, and for Ignite Restaurant Group its regrettable moment was to snap up Romano's Macaroni Grill in a $55 million deal two years ago. It seemed like a shrewd purchase at the time since the casual dining chain serving up Italian classics had changed hands at twice that price five years earlier. However, by unloading it a few weeks ago for a mere $8 million, Ignite's conceding that it wasn't its shiniest moment.
The move will help Ignite focus on its 139 Joe's Crab Shack and 21 Brick House Tavern + Tap restaurants. Brick House is a winner, sporting a 7.9% spike in comparable-restaurant sales in its latest quarter. The trend isn't as kind at the larger Joe's Crab Shack with its nearly 5% slide in comps, but the focus should help. Deficits are expected to narrow from here, and profitability may be in the cards by 2017. This is a turnaround story that will take some time to play out, but after shedding more than two thirds of its value since last year's springtime highs, the payoff could be substantial if it gets it right.
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We all know that McDonald's isn't holding up well after five consecutive quarters of negative comps. Things aren't going any better for Mickey D's overseas. Arcos Dorados isLatin America's largest restaurant chain with 2,121 franchised McDonald's locations across the region.
It's important to frame Arcos Dorados' performance in perspective. Revenue at the local level soared 12.7% in 2014, fueled by new restaurants but mostly a 10% pop in comps. However, Latin America's notoriously high inflation factors in to the escalating average check growth. Translate those currency fluctuations to a stateside perspective and revenue actually declined nearly 10% to $3.65 billion in 2014.
It has missed analyst profit targets in each of last year's four quarters, but it did turn profitable during the latter half of the year. Wall Street pros see Arcos Dorados building on that positive net income this year, and its microscopic price-to-sales multiple makes it a tempting value with a modest quarterly dividend to reward patient shareholders.
Carrols Restaurant Group
Another franchisee of a popular burger flipper is Carrols. It owns and operates 674 Burger King restaurants, a chain that is holding up better than McDonald's these days. Comps have been slightly positive in the last two years, but it has posted three straight years of losses.
Things should get better from here. Guidance for 2015 calls for healthy comps growth and increasing adjusted EBITDA. Now that Burger King Worldwide has been taken private -- again -- Carrols represents a potentially lucrative way for public investors to cash in on the chain's recent uptick in popularity at the expense of McDonald's.
The article 3 Promising Restaurant Stocks Under $10 originally appeared on Fool.com.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends McDonald's. The Motley Fool owns shares of Arcos Dorados. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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