Restaurants are go-to meeting hubs for friends, family, and colleagues. Still, their demand can ebb and flow with the broader economy because consumers can always cook meals at home when times are tough, and the market seems to be baking in a downturn for the industry - over the past six months, it has pulled back by 8.4%. This drop is a far cry from the S&P 500’s 22.6% ascent.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Taking that into account, here are two restaurant stocks we think can generate sustainable market-beating returns and one that may face trouble.
One Restaurant Stock to Sell:
Red Robin (RRGB)
Market Cap: $92.77 million
Known for its bottomless steak fries, Red Robin (NASDAQ:RRGB) is a chain of casual restaurants specializing in burgers and general American fare.
Why Do We Pass on RRGB?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Earnings per share have contracted by 19.4% annually over the last six years, a headwind for returns as stock prices often echo long-term EPS performance
- 10× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Red Robin’s stock price of $5.53 implies a valuation ratio of 1.7x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than RRGB.
Two Restaurant Stocks to Watch:
Domino's (DPZ)
Market Cap: $13.65 billion
Founded by two brothers in Michigan, Domino’s (NYSE:DPZ) is a globally recognized pizza chain known for its creative marketing and fast delivery.
Why Do We Watch DPZ?
- Offensive push to build new restaurants and attack its untapped market opportunities is backed by its same-store sales growth
- Free cash flow margin increased by 2.3 percentage points over the last year, giving the company more capital to invest or return to shareholders
- Industry-leading 93.8% return on capital demonstrates management’s skill in finding high-return investments
Domino's is trading at $403.32 per share, or 21.6x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
CAVA (CAVA)
Market Cap: $6.23 billion
Starting from a single Washington, D.C. location, CAVA (NYSE:CAVA) operates a fast-casual restaurant chain offering customizable Mediterranean-inspired dishes.
Why Is CAVA Interesting?
- Average same-store sales growth of 11.8% over the past two years indicates its restaurants are resonating with diners
- Earnings growth has trumped its peers over the last one years as its EPS has compounded at 200% annually
- Free cash flow margin grew by 3.1 percentage points over the last year, giving the company more chips to play with
At $54.05 per share, CAVA trades at 90.6x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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