Ruby Tuesday, Noodles & Co., and Sonic Bounce Back

By Rick Munarriz Markets Fool.com

If you believe some of the industry pundits, we may be in a restaurant recession. But that doesn't mean investors in some of eatery chains can't come out on top every so often. Shares ofRuby Tuesday (NYSE: RT), Noodles & Co. (NASDAQ: NDLS), and Sonic (NASDAQ: SONC) were some of last week's biggest winners, climbing 15%, 28%, and 10%, respectively.

Continue Reading Below

Ruby Tuesday moved higher after Leon Capital, a real estate-focused investment company took a 9.5% stake in the struggling casual-dining chain. Noodles & Co. kept moving higher after a private placement earlier in the month fortified its balance sheet. Sonic gained ground after posting encouraging financial results. They're all different concepts -- representing casual dining, fast casual, and fast food -- but all three stocks rewarded their investors with double-digit percentage gains last week.

Image source: Sonic Drive-In.

Order up

Leon Capital took a 9.5% stake in Ruby Tuesday toward the end of the prior week and in a regulatory filing mentioned that it was making an opportunistic purchase of the out-of-favor stock. Given Leon Capital's laser focus on real estate and Ruby Tuesday's announcement earlier in the month that it was exploring strategic alternatives, it wouldn't be a surprise if Leon Capital's valuing the struggling eatery's hard assets.

Noodles & Co. also attracted a significant investor, but at least the fast-casual pasta specialist is making some coin in the process. Noodles & Co. completed a private placement earlier in March, raising $31.5 million by selling nearly 8.9 million shares to Mill Road Capital at a price of $3.55 a share. The price was where the stock was at the time, and the shares have since soared 62%.

Continue Reading Below

Sonic cranked out mixed results for its fiscal second quarter. Revenue declined, held back by a rough 7.4% drop in comps, and the adjusted bottom line didn't fare much any better, declining 17% to $0.15 a share. Yet the stock moved higher because Sonic's outlook was far more encouraging. The company expects comps for the entire fiscal year to clock in between flat and a 2% decline. That suggests a dramatic turnaround during the second half of the year, after a 4.6% decline through the first half of fiscal 2017.

All three stocks were under fire until their recent rallies. Ruby Tuesday, a fading operator that hasn't posted a year of positive comps since 2006, has seen its stock plummet more than 90% over the past 10 years. Noodles & Co. is on a roll since last month's private placement fortified its liquidity, but it's trading for less than a third of its $18 IPO price from 2013. And Sonic is holding up relatively better than Ruby Tuesday and Noodles & Co., but its shares have still fallen 28% over the past year.

Last week's gains were warranted, even if all three concepts are currently suffering through negative comps. A real estate-savvy investor sees value in Ruby Tuesday at present levels. Noodles & Co. will have more money to plot its turnaround. And Sonic sees improving traffic trends. All three operators have a long way to go to get back to where they used to be, but a step up is still a step up.

10 stocks we like better than Ruby Tuesday
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Ruby Tuesday wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 6, 2017

Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.