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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 largely defined as food, and other supplies like bakery items and produce.

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

  • Market cap at $2.69B, most recent closing price at $38.05.
  • 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%.

2. Papa John's International Inc. (NASDAQ:PZZA): Operates and franchises pizza delivery and carryout restaurants under the Papa John's trademark in the United States.

  • Market cap at $1.4B, most recent closing price at $62.16.
  • Revenue grew by 19.94% during the most recent quarter ($367.28M vs. $306.21M y/y). Inventory grew by 10.4% during the same time period ($22.18M vs. $20.09M y/y). Inventory, as a percentage of current assets, decreased from 21.19% to 18.7% during the most recent quarter (comparing 3 months ending 2012-12-30 to 3 months ending 2011-12-25).
  • 5-year projected EPS growth at 12%.

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

  • Market cap at $8.2B, most recent closing price at $53.44.
  • Revenue grew by 4.08% during the most recent quarter ($811.6M vs. $779.79M y/y). Inventory grew by -24.96% during the same time period ($94.59M vs. $126.05M y/y). Inventory, as a percentage of current assets, decreased from 20.3% to 15.52% during the most recent quarter (comparing 13 weeks ending 2012-12-30 to 13 weeks ending 2012-01-01).
  • 5-year projected EPS growth at 11%.

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

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Kapitall is a team of analysts. This article was written by Rebecca Lipman, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

Source: 3 High Growth Restaurant Stocks With Encouraging Inventory Trends