Financial Pros Pick Their Favorite Restaurant Stocks

A new name cracked the Trackstar top five of the restaurant stocks financial advisors have been searching for most. From time to time here at The Juice, we have to admit we were wrong. On this stock, one of those times is now. 

In November, we made an argument we floated several times prior about sticking to the perennial leaders in the restaurant space. In Who Is The King Of Fast Food, we said:

How have Shake Shack (SHAK) and Restaurant Brands International (QSR) done in the last 30 days?

• SHAK: +12% (however, that’s after a 14.5%, six-month loss) 
• QSR: +11% 

So, not bad. You would have made some money if you short-term traded these names. We’re not ashamed to admit this. However, The Juice tends to come from the perspective of the long-term investor. 

And, without exception, the five-year and maxed-out charts of JACK, SHAK and QSR looked like nausea-inducing roller coaster rides, whereas MCD, SBUX, CMG and DPZ look — more like — straight lines up.

While all of that remains true, fast forward a few months and Shake Shack, in particular, is crushing it. The stock is up roughly 40% over the last month and 65% over the last year, blowing away its peers (except Chipotle Mexican Grill (CMG)) on today’s Trackstar list. So, it’s no wonder why financial pros have shown an interest, prompting SHAK to join the usual fast food suspects.

So what’s happening at Shake Shack, other than a killer year-end earnings report, including the following highlights? 

• A 20% increase in year-over-year revenue amid 15 new store openings in Q4/2023. 
• Swinging from a loss of $0.20 per share a year ago to a profit of $0.15 per share this year. 
• Predicting 2024 revenue growth of between 11% and 15% alongside 80 new store openings. 

We hit up Placer.ai’s foot traffic retail foot traffic reports to find out. We love blending Trackstar with some of the other excellent data we consume regularly. It’s a powerful combination for investors trying to determine what’s driving individual sectors and specific companies within them.

According to Placer.ai, Shake Shack experienced 24.3% year-over-year foot traffic growth in December 2023, followed by a 9.2% pop in January of this year. 

Wingstop (WING), a few slots behind SHAK in our Trackstar list, posted nearly as impressive 15.9% growth in December, then topped Shake Shack at 9.6% in January. Wingstop stock has been on an absolute tear, up approximately 100% over the last six months. 

Wingstop takes a different, less upscale approach than Shack, targeting families. In Wingstop’s four largest markets — California, Texas, Illinois and Florida — the company outperforms state indexes on drawing families with children. Wingstop visitors also tend to have a high number of people per household than the baselines in those states  

Back to Shack — the Placer.ai data also shows that the fast food chain has started appealing to a broader consumer base. Once frequented almost exclusively by ultra-wealthy families and educated urbanites, market share in those areas has declined, while increasing among young professionals and urban low income consumers. That low-income urban diner accounted for just 5.0% of Shake Shack’s market share in Q4/2019, but has popped to 6.2%, as of Q4/2023. This bodes well if Shake Shack expects to compete more effectively with names such as McDonald’s and Wendys. 

And there’s no doubt Shake Shack can compete. It’s really an ideal environment to encroach on the leaders. As McDonald’s, Wendys, Chipotle and others continue to raise prices, it makes Shake Shack look a little less expensive than before. This closing gap on cost, coupled with the perception of a higher quality product, can only help Shake Shack. 

The Bottom Line: While this is a compelling story — and one you might want to research further — we’re sticking to our original thesis. Yes, we missed upside in SHAK and might even miss some more. But stock picking in industries like this isn’t easy. It’s much easier to tell Shake Shack’s story in the rearview mirror than it was to call, say, Chipotle’s massive growth. 

Even worse, chasing names like this isn’t for the faint of heart. One misstep — like a bad earnings report or slowdown in store openings — and investors will punish SHAK. It simply doesn’t have the long-term street cred of a Chipotle or even McDonald’s. 

So we’re not losing sleep because we missed the upside in SHAK or WING. We did well enough with DoorDash (DASH) and Uber (UBER), two stocks we think have stronger long-term narratives than anything we’re seeing in the fast food or broader restaurant space.

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