SHAK - Wall Street Favorites: 3 Restaurant Stocks With Strong Buy Ratings for June 2024 

2024-06-18 09:00:00 ET

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Apart from the great Chipotle Mexican Grill (NASDAQ: CMG ), one of the most remarkable and resilient high-growth restaurant stocks on the market in recent years, the fast food, fast casual, and quick-serve restaurant scene hasn’t been too hot lately.

Not all chains have been able to keep thriving amid inflation, especially those known for offering some of the most competitive prices in the industry. Despite the higher costs of living, people still seem willing to pay more if they’re getting food that’s perceived as made with higher-quality, potentially healthier ingredients.

At this inflation winddown phase, I think quality could become more important than affordability. Of course, price sensitivity also remains vital, given intense industry competition and consumer cravings for a good deal.

In this piece, we’ll examine three restaurant stocks rated as buys by many analysts that may be worth considering in late June.

Chipotle Mexican Grill (CMG)

Chipotle Mexican Grill has continued to set the new growth standard for the restaurant industry. With the stock soaring close to 60% in the past year and over 158% in the last two years, many are likely wondering just how much this nearly parabolic recent rally has to go.

Though getting on the expensive side, I still view Chipotle as having the legs to climb past $3,500 per share. Many analysts feel the same way as the high-growth restaurant chain approaches its much-awaited and much-needed stock split .

Analysts at Goldman Sachs view Chipotle as a “leader in offering value and quality to customers,” which is quite remarkable given “consumer behavior changes” hitting the industry. I couldn’t agree more. Undoubtedly, Chipotle has a not-so-secret formula for growth, and until now, few other firms have been able to follow the same playbook.

Should rivals catch up with consumer trends by offering higher-quality food for an incrementally higher price, perhaps CMG stock’s momentum could slow. Until then, I find little reason to throw in the towel.

Cava (CAVA)

If there’s a firm that seems to be taking a page out of Chipotle’s playbook, it’s Cava (NYSE: CAVA ), a Mediterranean fast-casual restaurant that’s growing quite rapidly. With a $10.25 billion market cap, there’s plenty of room to run as the firm continues its expansion.

In many ways, Cava sounds like the little brother of a Chipotle. With delicious, healthy, and customizable Mediterranean meals, Cava is quickly becoming a household name for many. With more growth runway and no shortage of new menu items, Cava stands out as a restaurant high-flyer, which, like Chipotle, deserves a rich premium to the industry averages.

However, at writing, the stock trades at more than 420 times trailing price-to-earnings (P/E), making it one of the most expensive restaurant stocks you’ll likely come across this year.

At around eight times price-to-sales (P/S), CAVA stock looks somewhat more palatable, especially once the company shifts gears from sales growth to margin enhancement. That said, for now, Cava has its foot on the gas. It’s a high double-digit grower fit for fans of the chain who aren’t put off by volatility and the pie-in-the-sky multiple.

Shake Shack (SHAK)

Finally, we have Shake Shack (NYSE: SHAK ), an upscale burger and frozen custard chain that’s trying to show the world that consumers are more than willing to pay a little more to get a lot more quality. Though the value proposition is up for debate, I do find the company’s expansion plan could help SHAK stock resume its rally after recently plunging more than 18% off its 52-week highs near $110 per share.

The first Shake Shack opened in Canada last week in the city of Toronto, and it won’t be the last one. With many Torontonians eager to try the American chain for the very first time, it will be interesting to gauge just how lucrative a market Canada can be as Shake Shack looks to gradually increase its footprint north of the border.

For now, the firm’s taking it somewhat slow with the expansion into the new market, with just 34 additional stores to open in the next decade, less than the new locations to open in the U.S. in 2024. For now, I view the slow and steady expansion as incredibly prudent. It’s far better to wade your way into new waters than make too big of a splash early on with restaurant stocks.

On the date of publication, Joey Frenette did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .

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