The return of the meme stock frenzy has led online retailer Blue Apron (APRN) to gain more than 90% over the past month. However, the rally is not fueled by fundamentals. Thus, we think fundamentally solid restaurant stocks Arcos Dorados (ARCO), Nathan’s Famous (NATH), and Good Times Restaurants (GTIM) might be better investments. Read on….
With the return of the meme stock mania, internet food retailer Blue Apron Holdings, Inc. (APRN) is up 91.5% over the past month to close its last trading session at $5.65. The stock has a short float of 43.03%. However, as in the case of most meme stocks, the sustainability of such gains is questionable.
In addition, the recent rally in APRN is not backed by fundamentals. For the fiscal second quarter ended June 30, APRN’s net loss increased 24.4% year-over-year to $23.12 million, while its net loss per share came in at $0.68.
The stock has a trailing-12-month ROE of a negative 212.44% which is significantly lower than the industry average of 12.32%. Moreover, analysts expect its EPS to remain negative at least until the fiscal year 2023.
On the other hand, despite the challenges posed by the rapid rise in consumer prices, Americans seem to have retained their appetite for dining out. The U.S. census bureau reported monthly sales of food services and drinking places of $86.10 billion in July, up 12% as compared to July 2021. On top of it, the global food service market is expected to reach $4.43 trillion by 2028, registering a growth of 9.9% CAGR.
Arcos Dorados Holdings Inc. (ARCO)
ARCO, based in Montevideo, Uruguay, operates as a franchisee of McDonald Corporation’s (MCD) restaurants. The company possesses the exclusive rights to own, operate and grant franchises of MCD restaurants in 20 countries and territories.
For the fiscal second quarter ended June 30, ARCO’s total revenues increased 49.8% year-over-year to $887.90 million. Net income rose 192% from the prior-year quarter to $14.58 million. Net income per common share improved 250% from the same period the prior year to $0.07.
The consensus EPS estimate of $0.45 for the fiscal year 2022 indicates an 87.5% year-over-year increase. Likewise, the consensus revenue estimate for the same year to $3.36 billion reflects an improvement of 26.8% from the prior year. Moreover, ARCO has an impressive surprise earnings history, as it has topped consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 35.5% over the past year and 33.6% year-to-date to close its last trading session at $7.79.
ARCO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ARCO has a Value grade of A and a Growth and Sentiment grade of B. In the 53-stock Restaurants industry, it is ranked #3.
Click here to see the additional POWR Ratings for ARCO (Momentum, Stability, and Quality).
Nathan’s Famous, Inc. (NATH)
NATH operates in the food service industry as an owner of franchise restaurants under Nathan’s Famous brand name. The company also sells products bearing Nathan’s Famous trademarks through various distribution channels.
Effective August 5, 2022, the company declared a quarterly dividend of $0.45 per share, payable to shareholders on September 22. The company also reported having paid the $0.45 per share regular dividend that was declared on June 10. This reflects the cash generation ability of the company.
NATH’s total revenues increased 26.8% year-over-year to $39.72 million in the fiscal first quarter ended June 26. Net income and income per share improved 23.8% and 24.3% from the prior-year period to $7.14 million and $1.74.
Over the past three months, the stock has gained 34.5% to close its last trading session at $62.39. It has gained 11.6% over the past month.
It’s no surprise that NATH has an overall A rating, which translates to Strong Buy in our POWR Rating system.
NATH has an A grade for Quality and a B grade for Sentiment. It is ranked #2 in the Restaurants industry.
To see the additional POWR Ratings for Growth, Value, Momentum, and Stability for NATH, click here.
Good Times Restaurants Inc. (GTIM)
GTIM owns and franchises upscale quick-service drive-through dining restaurant Good Times Burgers & Frozen Custard, and owns, operates, franchises, and licenses full-service upscale casual dining restaurant Bad Daddy’s Burger Bar.
On July 12, GTIM announced that same-store sales for its third quarter ended June 28 increased 1.6% for its Good Times brand from the prior-year quarter and increased 5.3% for its Bad Daddy’s brand from the same prior-year quarter.
For the fiscal third quarter ended June 28, GTIM’s total net revenues increased 7.5% year-over-year to $36.50 million. This can be attributed to a rise of 7.6% from the prior-year quarter in restaurant sales to $36.27 million.
GTIM’s shares have gained 12.2% over the past three months to close its last trading session at $2.94.
This promising prospect is reflected in GTIM’s POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
GTIM has a Value grade of A and a Growth, Momentum, Sentiment, and Quality grade of B. It is ranked #1 in the same industry.
In addition to the POWR Rating grades we’ve stated above, one can see GTIM’s rating for Stability here.
ARCO shares were trading at $7.85 per share on Thursday morning, up $0.06 (+0.77%). Year-to-date, ARCO has gained 36.13%, versus a -11.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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