In this article, we will take a look at the top 10 restaurant stocks under $10. If you want to skip our industry analysis, you can go straight to the Top 5 Restaurant Stocks Under $10.
The restaurant industry is showing signs of recovery as the ease in inflation levels and fall in gas prices is helping restore consumers’ purchasing power. In September, same-store sales for restaurants grew by 5.2% YoY. The significance of the US restaurant industry can be gauged by the fact that it accounts for 4% of the US GDP as opposed to a contribution of 3% and 2%, respectively, by the automobile and fashion industries. However, the restaurant industry is also struggling to match the increase in demand for its services. The US food service industry employs 14.9 million workers as of 2022 and is still facing labor shortages as the COVID-19 pandemic caused numerous workers to leave the industry and pursue opportunities in sectors that were less impacted by the pandemic. The labor shortage has also led some leading companies to trim their working hours by 7.5% or 6.4 hours per week compared to the pre-pandemic data.
To keep up with consumer preferences, restaurants are rapidly adapting to changing industry trends. The best restaurant stocks such as McDonald’s Corporation (NYSE:MCD), Yum! Brands Inc. (NYSE:YUM), and Domino’s Pizza, Inc. (NYSE:DPZ) have actively capitalized on the advancements in technology in the industry. Overall, 42% of all orders are now accepted through the online channel. The online medium gained pace during the COVID-19 pandemic, and despite the ease of the pandemic, customer preferences have not changed. Furthermore, 79% of customers think that technological advancement has enhanced their restaurant experience. The integration of social media with online ordering, along with inventions like self-ordering kiosks, has paved a new way for customers to enjoy food from their favorite restaurants at their convenience. Food ordering through an online medium has increased by 135% since June 2020.
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Our Methodology
In order to come up with our list of the best restaurant stocks to buy under $10, we have analyzed the growth drivers for each of these stocks to gauge the potential upside they can offer to investors in the long run. We have also discussed the analyst ratings and business fundamentals. These best restaurant stocks are trading under $10 as of November 8 and have been ranked according to the level of hedge fund ownership as of Q2 2022.
Top 10 Restaurant Stocks Under $10
10. The ONE Group Hospitality, Inc. (NASDAQ:STKS)
Number of Hedge Fund Holders: N/A
Stock Price: $7.61
The ONE Group Hospitality, Inc. (NASDAQ:STKS) is a Denver, Colorado-based developer and operator of upscale, casual, and vibrant restaurants and lounges that include STK Steakhouse and Kona Grill.
Joshua Long at Stephens started coverage on The ONE Group Hospitality, Inc. (NASDAQ:STKS) stock with a target price of $15 and an Overweight rating on September 22. The analyst thinks that the stock offers an attractive growth story for investors and has a strong presence in the fine-dining restaurant segment. The ONE Group Hospitality, Inc. (NASDAQ:STKS) will be able to leverage its position as a leader in the industry through its high-end social and experiential dining offerings. The company is operating a business that is light on assets and delivers high margins globally.
In Q3 2022, analysts anticipate The ONE Group Hospitality, Inc. (NASDAQ:STKS) to report revenue of $77.13 million, reflecting an increase of 7.8% from the same period last year. Meanwhile, the adjusted EPS is expected to be posted at 13 cents. In terms of comparable sales, analysts think The ONE Group Hospitality, Inc. (NASDAQ:STKS) is outperforming many of its competitors, making it one of the best restaurant stocks to hold.
9. FAT Brands Inc. (NASDAQ:FAT)
Number of Hedge Fund Holders: 1
Stock Price: $8.02
FAT Brands Inc. (NASDAQ:FAT) is a Beverly Hills, California-based operator of multi-brand restaurants that include Buffalo Express, Fatburger, Johnny Rockets, and Round Table Pizza. The company, with a rich history of over seven decades, has over 2,300 units globally and is the 25th biggest restaurant chain in the US.
With a portfolio of renowned restaurant brands, FAT Brands Inc. (NASDAQ:FAT) is looking to expand its presence in the US and global markets. The entity has opened its restaurants at 100 new locations this year and intends to close the year with the opening of 125 new restaurants. The corporation is capitalizing on growth opportunities across all markets. FAT Brands Inc. (NASDAQ:FAT) has a strong pipeline of 1,000 new locations as it has signed 180 new franchise agreements. These deals are expected to increase FAT Brands Inc.’s (NASDAQ:FAT) EBITDA by as much as 60% in the coming years, meriting the company’s inclusion in the list of the best restaurant stocks.
Experts believe that FAT Brands Inc. (NASDAQ:FAT) stock is undervalued compared to other restaurant franchisors. The company’s price-to-sales ratio of 0.33x and enterprise value-to-EBITDA ratio of 29.34x is significantly lower than companies like Domino’s Pizza.
8. Drive Shack Inc. (NYSE:DS)
Number of Hedge Fund Holders: 11
Stock Price: $0.66
Drive Shack Inc. (NYSE:DS) is a Dallas, Texas-based company known for bringing together the experience of a golf driving range with weekend brunches, birthday parties, and corporate events.
The company is transforming itself into an entertainment golf company while maintaining its roots in the traditional golf category, which generates healthy and stable cash flows. However, the company is expanding its presence in the puttery or entertainment golf segment. The construction of a puttery takes only six to nine months after the land lease agreement and is expected to generate EBITDA of $2 million to $3 million annually. Drive Shack Inc. (NYSE:DS) is focusing on developing 50 puttery locations by 2024. Puttery generates the majority of its revenue from food and drinks but also provides diversification as gaming stands generate around 15% of the revenue.
In Q2 2022, Drive Shack Inc. (NYSE:DS) saw the sales of food and beverages rise by $7 million. Traditional golf contributed $4.9 million to the increase in revenue, while entertainment golf made a contribution of $2 million. It must be noted that Drive Shack Inc. (NYSE:DS) has a capital-intensive model, but the company can sustain that due to high EBITDA margins and the rise of entertainment golf amongst the younger generation. Drive Shack Inc. (NYSE:DS) is trading at an EV/EBITDA ratio of 7.3x, in comparison to the industry average of 8.5x. Analysts see the company as a high-risk/reward option for investors looking to gain exposure to the restaurant industry. The company’s growth prospects make Potbelly Corporation (NASDAQ:PBPB) one of the best restaurant stocks to invest in.
7. Good Times Restaurants Inc. (NASDAQ:GTIM)
Number of Hedge Fund Holders: 5
Stock Price: $2.26
Good Times Restaurants Inc. (NASDAQ:GTIM) is a Lakewood, Colorado-based fast food restaurant chain known for its premium burgers and frozen custard through Good Times Burger and Bad Daddy’s Burger Bar. The company currently owns and franchises 36 Good Times Burger locations and 31 Bad Daddy’s Burger Bar.
Good Times Restaurants Inc. (NASDAQ:GTIM) believes in maintaining a competitive pricing model and aims to increase prices slower than its peers. This is a new strategy being pursued by the company, as it previously used to be the highest-priced restaurant among its competitors. Experts believe Good Times Restaurants Inc. (NASDAQ:GTIM) stock is cheap in terms of valuation against its competitors, and the share price could bounce back to higher levels once inflationary pressure eases. Good Times Restaurants Inc. (NASDAQ:GTIM) reported that its same-store sales for Q4 FY22 increased by 5.9% for Good Times and 3.7% for Bad Daddy’s brand. The company performed well despite a tough macroeconomic environment, making it one of the best restaurant stocks to invest in.
Renaissance Technologies was the leading hedge fund investor in Good Times Restaurants Inc. (NASDAQ:GTIM) during Q2 2022.
6. Potbelly Corporation (NASDAQ:PBPB)
Number of Hedge Fund Holders: 6
Stock Price: $4.99
Potbelly Corporation (NASDAQ:PBPB) is a Lincoln Avenue, Illinois-based operator of a fast-casual restaurant chain known for its submarine sandwiches and milkshakes. The company, founded in 1977, intends to open 19 new locations through a franchise-based model in the next two years.
Potbelly Corporation (NASDAQ:PBPB) has benefitted from the return of foot traffic in the central business districts and the airport shops as its offerings are suited for the on-the-go crowd. Potbelly Corporation (NASDAQ:PBPB) reported same-store-sales (SSS) growth of 24.4% in Q1 and 17.2% in Q2 2022. The company continued the positive trend in Q3 2022 by posting the sixth consecutive quarter of same-store sales growth. Potbelly Corporation’s (NASDAQ:PBPB) management wants to expand its presence to 2,000 locations, with 85% of the facilities franchised over the next decade.
Furthermore, the involvement of 180 Degree Capital Corp. as an activist hedge fund has resulted in a change of senior management of the company that is helping Potbelly Corporation (NASDAQ:PBPB) achieve higher operational efficiency due to improved execution of strategic plans. The company’s strong fundamentals make it one of the best restaurant stocks to buy now.
First Eagle Investment Management increased its stake in Potbelly Corporation (NASDAQ:PBPB) by 48% during the second quarter of the year.
Besides Potbelly Corporation (NASDAQ:PBPB), some of the popular companies in the restaurant industry include McDonald’s Corporation (NYSE:MCD), Yum! Brands Inc. (NYSE:YUM), and Domino’s Pizza, Inc. (NYSE:DPZ).
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Disclose. None. Top 10 Restaurant Stocks Under $10 is originally published on Insider Monkey.