4 stocks to buy on steady growth in restaurant sales

Rretail sales fell for the first time in five months in May. While rising prices have been a concern that has led people to spend cautiously, another reason for the decline is that lately people have been spending more on services than on goods.

Perhaps this is why US restaurant sales are rising despite a drop in retail sales, bar and restaurant sales are the only services included in retail sales. Given this, investing in restaurant stocks like Arcos Dorados Holdings Inc. ARCO, BBQ Holdings, Inc. A BARBECUE, The ONE Hospitality Group, Inc.. STKS and Potbelly Corporation PBPBs should benefit from this in the short term.

Restaurant sales growth

According to the latest report from the US Census Bureau, American bars and restaurants generated $84.98 billion in revenue in May, up 0.7% month-on-month. This comes despite a 0.3% decline in overall retail sales.

In recent times, people have been spending cautiously on fuel, food and other necessities as the price of consumer goods continues to rise. This was one of the main reasons for the drop in retail sales in May. The increased demand for goods encouraged people to spend despite rising prices, which so far had helped the retail sector.

However, the sector could not maintain its momentum and sales eventually plunged after five months. The restaurant scene, however, has been completely different. Although people spend cautiously on luxuries, they spend a lot on restaurants.

The gains for U.S. bars and restaurants in May follow strong sales in March and April, when revenues of $84.42 billion and $82.39 billion, respectively, were made. This shows the steady growth in restaurant sales.

Restaurant sales are poised to grow

A separate Mastercard SpendingPulse report shows restaurant sales jumped 26.7% in May on a year-over-year basis. The increase in spending in bars and restaurants also proves that people have started to spend more on services again.

The peak of the pandemic and the months that followed saw a change in trend as people spent more on goods and less on services as the economy remained only partially open. That finally started to change at the start of the year when the economy started operating at its optimum level.

With the majority of Americans now fully immunized, most COVID restrictions have now been lifted and people are walking out of their homes with more confidence. This has seen people start traveling again and planning vacations, going to amusement parks and eating out.

As a result, spending in the services sector is on the rise again, although rising prices have somewhat slowed the pace of growth. However, the service sector is still growing. The US services sector PMI came in at 55.9%. Anything above 50 indicates higher growth.

This shows that people are still spending quite aggressively on services and indicates that spending in restaurants and bars will continue to rise.

Our choices

Given the situation, the ideal would be to invest in restaurant stocks. We shortlisted four restaurant stocks, each carrying a Zacks rank of No. 1 (Strong Buy) or 2 (Buy). You can see the full list of today’s Zacks #1 Rank stocks here.

Arcos Dorados Holdings Inc. operates as a franchisee of McDonald’s, with its operations spread across Brazil; North Latin America division; South Latin America and Caribbean Division. ARCO also operates quick service restaurants in Latin America and the Caribbean.

Arcos Dorados’ expected profit growth rate for the current year is 83.3%. The Zacks consensus estimate for current-year earnings has improved 12.8% over the past 60 days. ARCO has a #2 Zacks rank.

BBQ Holdings, Inc. operates and franchises barbecue restaurants and blues clubs. BBQ currently has locations and franchise locations in Minnesota, Wisconsin, Illinois, Iowa, Nebraska, Utah, Maryland and Virginia and has signed development agreements for additional franchise locations. The menu at BBQ Holdings features award-winning grilled and grilled meats, an extensive selection of unique salads, sides, sandwiches and desserts.

BBQ Holdings’ forecast earnings growth rate for the current year is 67.6%. The Zacks consensus estimate for current-year earnings has improved 0.8% over the past 60 days. BBQ sports a No. 2 Zacks rank.

The ONE Hospitality Group, Inc.. operates as a host society. STKS develops, manages and operates a portfolio of high-energy restaurants, lounges and bars. The ONE Group Hospitality also provides catering hospitality solutions. STKS’ main restaurant brand is STK, which is a steakhouse concept with locations in metropolitan cities across the United States and in London.

ONE Group Hospitality’s expected profit growth rate for the current year is 27.1%. The Zacks consensus estimate for current-year earnings has improved 1.4% over the past 60 days. STKS has a #2 Zacks rank.

Potbelly Corporation is a neighborhood sandwich concept. PBPB operates on-site food consumption establishments to offer sandwiches, salads, soups, chili, chips, cookies, ice cream and smoothies. It serves customers all over the United States.

Potbelly Corporation’s expected earnings growth rate for the current year is over 100%. Shares of PBPB have gained 2.8% over the past six months. Potbelly Corporation has a #2 Zacks rank.

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