Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message|
( followers)  

From retailers to restaurants, the reported rise in the consumer confidence index implies more customers and greater revenues. With this in mind we searched for gems in the restaurant industry that have potential to benefit from the optimism.

To create the list below we screened a universe of restaurant stocks for strong long-term growth potential. We pulled on the names with five-year projected EPS growth above 10%.

We then looked for those stocks with strong sales trends by comparing growth in revenue to growth in inventory over the last year. We screened for stocks with positive sales trends, with faster growth in revenue than inventory over the last year. Since inventory represents the portion of goods not yet sold, faster growth in revenue than inventory is considered an encouraging sign. In the case of restaurants, inventory is defined as food, and other supplies like bakery items, and produce.

5 restaurant stocks made the final list.

A Closer Look

We encourage potential investors to look at a recent report on The Cheesecake Factory (NASDAQ:CAKE) by the Restaurants research team at Hedgeye Risk Management. The main takeaway from the article is that The Cheesecake Factory has maintained strong margins, impressive top-line growth in a difficult macro environment and has a free cash flow yield of 6% that makes the stock worth a second look.

The List

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

Do you think these stocks are poised to move higher? Use this list as a starting point for your own analysis.

1. The Cheesecake Factory Incorporated: Operates upscale, casual, and full-service dining restaurants in the United States.

  • Market cap at $1.78B, most recent closing price at $33.10.
  • Revenue grew by 5.44% during the most recent quarter ($453.82M vs. $430.42M y/y). Inventory grew by -8.94% during the same time period ($30.95M vs. $33.99M y/y). Inventory, as a percentage of current assets, decreased from 26.46% to 16.67% during the most recent quarter (comparing 13 weeks ending 2012-10-02 to 13 weeks ending 2011-09-27).
  • 5-year projected EPS growth at 15%.

2. Brinker International, Inc. (NYSE:EAT): Develops, operates, and franchises various restaurant brands primarily in the United States.

  • Market cap at $2.2B, most recent closing price at $31.14.
  • Revenue grew by 1.15% during the most recent quarter ($689.76M vs. $681.9M y/y). Inventory grew by -3.73% during the same time period ($26.34M vs. $27.36M y/y). Inventory, as a percentage of current assets, decreased from 10.83% to 10.03% during the most recent quarter (comparing 13 weeks ending 2012-12-26 to 13 weeks ending 2011-12-28).
  • 5-year projected EPS growth at 14%.

3. Krispy Kreme Doughnuts, Inc. (NYSE:KKD): Operates as a branded retailer and wholesaler of doughnuts, complementary beverages and treats, and packaged sweets.

  • Market cap at $834.16M, most recent closing price at $12.79.
  • Revenue grew by 8.49% during the most recent quarter ($107.09M vs. $98.71M y/y). Inventory grew by -1.59% during the same time period ($16.68M vs. $16.95M y/y). Inventory, as a percentage of current assets, decreased from 20.7% to 14.45% during the most recent quarter (comparing 13 weeks ending 2012-10-28 to 13 weeks ending 2011-10-30).
  • 5-year projected EPS growth at 25%.

4. Ruth's Hospitality Group, Inc. (NASDAQ:RUTH): Operates steakhouses, with company-owned and franchisee-owned restaurants in the U.S.

  • Market cap at $333.18M, most recent closing price at $9.38.
  • Revenue grew by 5.75% during the most recent quarter ($84.8M vs. $80.19M y/y). Inventory grew by 0.44% during the same time period ($6.89M vs. $6.86M y/y). Inventory, as a percentage of current assets, decreased from 32.54% to 28.97% during the most recent quarter (comparing 13 weeks ending 2012-09-23 to 13 weeks ending 2011-09-25).
  • 5-year projected EPS growth at 18%.

5. Tim Hortons Inc. (NYSE:THI): Develops, franchises, and operates quick service restaurants primarily in Canada and the United States.

  • Market cap at $7.65B, most recent closing price at $49.90.
  • Revenue grew by 10.33% during the most recent quarter ($802.04M vs. $726.93M y/y). Inventory grew by -23.91% during the same time period ($103.07M vs. $135.45M y/y). Inventory, as a percentage of current assets, decreased from 25.32% to 18.36% during the most recent quarter (comparing 13 weeks ending 2012-09-30 to 13 weeks ending 2011-10-02).
  • 5-year projected EPS growth at 12%

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: 5 High-Growth Restaurant Stocks With Encouraging Inventory Trends