Thanks to an influx of fast casual restaurantchains going public over the last five years, there are more stocks to watch in what we're eating than ever before. The restaurant industry is big business,and a wealth of smaller chains have sought more robust funding with the hopes of delivering big time growth. The National Restaurant Association estimates American spending on dining out in 2014 totaled roughly $709 billion, and spending at restaurants is booming.
With new eateries entering the fray and vying for expansion and positive momentum in the broader industry, it's an exciting time for the restaurant biz and potentially a good time to invest in some of these relatively new fast casual chains. Here's why Chipotle Mexican Grill , Shake Shack , and Habit Restaurants should be on your watch list.
ChipotleChipotle Mexican Grill is one of the companies at the forefront of the fast casual revolution that is currentlytransforming the restaurant landscape. Most known for its customizable burritos,the restaurant chain hascultivated a strong public imageby using higher quality ingredients than many fast food competitors and has delivered huge sales growth over the last decade. Annual revenue has grown nearly 400% since going public in 2006, and shares have gained over 3,000% from the initial offering price, and roughly 370% over the last 5 years.
Chipotle has a market cap of roughly $20 billion and a forward P/E value of approximately38. The company's valuation implies healthy growth, and revenues look to continue expanding as the company explores international markets and increases its store count. Annual sales have grown roughly 124% over the last five years, and last quarter saw the company record 17% growth in same store sales and total quarterlysales grew roughly 20% to $1.09 billion. As ofits last reportingperiod, Chipotle had just 1,831 locations worldwide, and the company anticipates adding roughly 200 new locations per year going forward. Strongbranding and demand for the company's foodlooks likeit willenable the burrito-maker to carve out a bigger share of the restaurant market going forward.
Shake ShackBurger and shake company Shake Shack went public in January 2015, and shares quickly doubled as investors looked tohitch their dollars tothe next big fast casual sensation. Company stock has increased roughly 143% since initial pricing of $21 a share, however its share price has fallen more than 31% in the last month, owing partially to a more-cautious revised outlook from Morgan Stanley. Even after the significant stock decline, Shake Shack has a forward P/S value of roughly 11Company stock is priced for big growth and its lofty valuation is worth considering before investing in the restaurant chain,but with just 68 locations as of its last quarterly report, there is lots of room for expansion.
Like Chipotle, Shake Shack emphasizes its use of high quality ingredients and comparatively high-end dining areas relative to other fast food chains and is aiming to ride momentum in fast casual dining experiences to continued growth. Shake Shack also sells beer and wine, which provide high margin revenue and could provide a buffer from rising food prices.
The company anticipates that it will grow to 450 locations in the U.S. alone, though it hasn't given a timetable for hitting that target. To its credit, Shake Shack has a solid balance sheet and relatively little debt, which should help grow its location count, but the company will also need to continue growing brand strength if it's to deliver Chipotle-like wins for investors.
Habit RestaurantsHabit Restaurants has a few characteristics that help it stand out from the increasingly crowded fast casual competition. Chief among Habit's competitive advantages: People seem to really enjoy the company's hamburgers. Habit's burgers topped Consumer Reports' 2014 Best Burger poll, an achievement that created a nice splash ofpublicity for the company and cemented a notable laurel for the company to market around.
Habit's pricing model may also help the company achieve continued growth. Its menu is priced relatively low compared to competitors like Five Guys and Shake Shack, and the combination of affordable prices and tastyburgers could help thecompany deliver growth even if macro conditions worsen. The company's last quarterly report delivered 12.6% comparable sales growth and 44% revenue growth, establishing the company's 45th consecutive quarterwithyear-over-year sales growth.
Habit has a market cap of roughly $800 million and a forward price-to-sales ratioof roughly 3.6. The companyoperates just 125 storesacross six American states, so it haslots of room for expansion. Shares are up roughly 75% from the company's $18 IPO price, however the stock is down roughly 20% from its closing price after its first day of trading in November 2014. Even with the dips, Habit's highly regarded food andexpansion potentialmake it a stock to watch in what we eat.
The article What We Eat: 3 Stocks to Watch originally appeared on Fool.com.
Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. 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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