Better than Burgers: Three Stocks that Look as Good as They Taste
Ben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Fast food is a dirty phrase. It evokes images of frozen, low quality burgers in cheap restaurants. But the speed in which you get your meal shouldn’t be a factor in how it tastes. This is the philosophy that fast-casual restaurants have developed. They serve delicious food and drinks in a timely manner, putting them above more generic fast food companies. Let’s look at some of America’s favorite faster serving restaurants.
A better burrito
Chipotle Mexican Grill (NYSE: CMG) operates roughly 1,450 Mexican restaurants that pride themselves on fresh food. With quarterly revenue growth of 13.40% and earnings growth of 22.20%, Chipotle has been consistently growing for years. Chipotle hopes to continue this growth with new menu items and international expansion. The company has been testing a new item, sofritas, in Northern California. This vegetarian item was well received and was launched in Southern California on June 3. Chipotle has also made plans to expand in Paris and Germany. Whether the Mexican restaurant is well received overseas still remains to be seen.
Where Chipotle has most of its growth potential is in its newer Shophouse Southeast Asian Kitchen. Launched in 2011, there are only a few Shophouse locations, but Chipotle plans on opening a few more in the coming months. Chipotle is still focusing mainly on their original Mexican brand, but the Asian alternative could drive growth in the future as demand for more burritos slows.
A potential problem for Chipotle could be its price point. The company announced that it will be raising prices at the end of the summer. Chipotle is already more expensive than other fast-casual Mexican restaurants, and a price increase might push consumers towards competitors such as Moe’s Southwest Grill. While the price increase might disappoint customers, I think Chipotle’s brand loyalty is strong enough to keep them from eating somewhere else.
Chipotle has good profitability with competitively high profit and operating margins of 10.36% and 17.00%, respectively. The company recently posted revenue of $2.82 billion that yielded a $291.92 million net income. When you look at Chipotle’s current success paired with it’s plans for the future, I think Chipotle has more growing to do.
Banking on bread
Panera Bread Company (NASDAQ: PNRA) owns and franchises over 1,600 bakery-cafes across America. Despite taking a hit from bad weather in February, the bakery managed to increase quarterly revenues by 12.7%. Panera’s main draw for customers is menu options that are different and delicious. The company recently launched its pasta dishes nationally and are releasing new shrimp dishes, frozen beverages, and deserts.
Panera has been taking advantage of technology. MyPanera rewards program also has potential to drive growth for the bakery. Now with 13.8 million members, the rewards program allows Panera to deliver targeted marketing to customers. Panera has also improved its online catering services.
Panera is anticipating earnings per share growth of 17% to 19% for the coming year, and will open between 115 and 125 new restaurant locations. With its consistent growth and expansion strategies, I think that Panera will continue to deliver investor value.
Where the wild wings are
If you like sports, then you’ve more than likely heard of Buffalo Wild Wings (NASDAQ: BWLD). The company owns, operates, and franchises restaurants that are known for their wings. The company had a successful first quarter, growing revenue 21.20% and adding 20 restaurants across America. Going forward from this success, the wing chain hopes to improve upon its already impressive restaurant model.
Buffalo Wild Wings is planning on changing wing order sizes to help improve margins. Customers will be able to order wings in the new sizes snack, small, medium, and large as opposed to ordering by the number of wings. This will allow the company to change the number of wings on a plate depending on the weight of each individual wing.
The company is also improving its beer service. It is working with craft brewer Redhook to create a new draft beer called Game Changer. According to CEO Sally Smith, this premium craft beer is “designed to go perfectly with our (Buffalo Wild Wings’) flavorful wings while watching a game.” The beer will launch this summer and will help Buffalo Wild Wings improve beer sales and margins.
But isn’t Buffalo Wild Wings more casual dining than fast-casual? Buffalo Wild Wings is casual dining, but PizzaRev is fast-casual. Buffalo Wild Wings just purchased a minority share in the fast-casual pizza restaurant that is quickly gaining momentum in California. As PizzaRev continues to develop, Buffalo Wild Wings will have the option to increase capital investments and build its own PizzaRev locations. PizzaRev has a lot of potential and could be a major source of profit down the road.
With consistent same-store sales growth, wing moderation, and beer innovations, Buffalo Wild Wings is expecting 17% net earnings growth by the end of the year. With a forward P/E of 21.34 and a PEG of 1.39, I think that the stock is fairly priced. The potential of PizzaRev is what I think makes the wing cooker a good long term investment.
Chipotle, Panera, and Buffalo Wild Wings all deliver quality food quickly. They have all successfully created strong brands and are still expanding. Consumers are willing to pay a premium for higher quality ingredients which is driving the fast growth of the fast-casual dining market. The fact that these companies are well managed and are thriving in a growing market make them good investments for the long run.
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Ben Popkin has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings, Chipotle Mexican Grill, and Panera Bread. The Motley Fool owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, and Panera Bread. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!