Although inflation has come down from the 2022 peak, it is still high and continues to hurt our wallets. With a slight improvement in consumer spending, there is hope that inflation will continue to cool and we will see better days soon. The idea of investing in restaurant stocks might not seem appealing to many investors but this is one industry that improves with the economy. Whenever the economy is growing, we see the restaurant industry thriving. Consumers have started to loosen their grip on their wallets and this is a sign to invest in the best restaurant stocks. Many companies have been doing well, even during a market turmoil and such restaurant stocks can thrive in any situation. In this article, we discuss three undervalued restaurant stocks to buy now.
McDonald’s (MCD)
One of the top restaurant stocks to buy right now is McDonald’s (NYSE:MCD). The company has given investors several reasons to rejoice. It recently announced the second quarter results and reported impressive growth momentum. The company saw a 12% rise in the comparable sales growth and a 10% increase in the U.S. market. Despite inflation and rising prices, consumers continued to love its burgers and this showed in McDonald’s financials. It enjoys an unusually high profit because of its franchise selling model. This helps maintain a low operating cost while ensuring a steady flow of income.
The company is firing on all cylinders. While MCD stock is already trading near the all-time highs, it is worth investing in. At $281 today, the stock is inching closer to 52-week high of $299. The stock is up 8% in the year and over 75% in the past five years. You will have to pay a premium for the stock but it will pay off in the long-term.
The company will ensure steady earnings growth and you can also enjoy the steady and reliable dividend. MCD has a dividend yield of 2.16% and the company has enough liquidity to continue rewarding the shareholders for years to come. It has a clear path towards market expansion and the shares could soar higher if it continues the growth spree. The company’s brand value and success is already included in the stock price and patient investors can take home massive gains with this restaurant stock.
Several analysts are bullish on the stock and have raised their price target. Guggenheim analyst has a price target of $330 on the stock while RBC Capital has a price target of $340. BMO Capital also has a price target of $340 and Wells Fargo has a target of $310. There is plenty upside potential on this stock.
Wendy’s Company (WEN)
The Ohio-based fast-food burger chain, Wendy’s Company (NASDAQ:WEN) is already operating more than 7,000 locations and is on its way to increase the market share. It is the third-largest burger chain in the United States and is known for the delicious burgers. Wendy’s has a solid balance sheet which is one big reason to invest in the stock. In the second quarter, it reported an adjusted EPS of $0.28 and a revenue of $561.6 million. It saw a 4.4% improvement in the top line on a year-over-year basis, despite high inflationary pressure. This was due to higher sales and an increase in the franchise royalty revenues. In the quarter, it opened 41 new restaurants globally.
Another reason to invest in the stock is its impressive dividend. The company has a dividend yield of 4.79% and paid a quarterly dividend of $0.25. For a stock with massive upside potential, Wendy’s looks undervalued to me. It is trading at $20 today and is very close to the 52-week high of $23.
The company has already started incorporating AI in its business through the drive-through platform. That said, it is also experimenting with the autonomous robot system for the food order deliveries. By using AI in its drive-through platform, the company wants to ensure that they offer quick and efficient service to the customers. It will also help reduce the cost of operations.
Wendy’s has partnered with Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) for the same and I believe it will boost the company’s revenue and these locations will report higher sales numbers. With better profitability and higher growth, the company could see franchisees at new locations. For Wendy’s, the future is bright and there is a lot working in its favor. One of the most delicious restaurant stocks to buy, consider adding it to your portfolio this month.
Shake Shack (SHAK)
A popular name across the world, Shake Shack (NYSE:SHAK) is one of the most undervalued restaurant stocks to buy this month. Known for milkshakes, the company operates at more than 460 locations across 30 states in the U.S. and several other countries.
In the recent quarterly results, the company reported a revenue of $271.8 million which is up 17% as compared to 2022 out of which $10 million is the licensing revenue. The company reported a net income of $7.2 million and diluted earnings per share of $0.16. Shake Shack went from reporting a loss in 2022 to a net income in 2023 which is highly impressive. Since the beginning of the year, SHAK stock has been on fire and has gained over 68%. In the past six months, it gained 24% and is trading at $70 right now, very close to the 52-week high of $80.
It expects same-store sales growth in the low to mid single digits for the year and has called for revenue of $1.06 billion to $1.11 billion for the year, which is a 20% growth. I believe the company is making the right moves and is on the growth path. SHAK is a great small cap stock to add to your portfolio right now, the stock could end the year with a new 52-week high.
Shake Shack has built an excellent brand, a wide network of stores and is steadily expanding the market share. The company has all it needs to succeed in the restaurant business and with the impressive financials, it has a long way to go.
On the date of publication, Vandita Jadeja 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.