Everyone enjoys a tasty meal. But did you know that the food and beverage industry can also deliver delicious returns for your investment portfolio? Restaurant chains with a strong reputation that are serving up delicious and affordable fare can qualify as solid long-term growth stocks that deserve a place within your portfolio. With steady price adjustments and international expansion plans, such companies can make a name for themselves globally.
The key to enjoying these tantalizing returns is to have patience. Restaurant operations represent physical locations that need time to be built and require a gestation period before they become profitable. By owning solid restaurant stocks over the long run, you can see the value of your portfolio climb steadily as these businesses post rising revenue, net income, and cash flows. Some may even pay a steadily increasing dividend as a sweetener.
Here are three attractive restaurant stocks that you can look at including in your investment portfolio.
Chipotle Mexican Grill
Chipotle Mexican Grill (NYSE: CMG) owns a chain of restaurants serving Mexican food with nearly 3,500 outlets across the U.S., Canada, and Europe as of June 30, 2024. Chipotle's share price has nearly quadrupled in the last decade, and shareholders recently approved its first-ever 50-for-1 stock split, with shares trading on a post-split basis from June 26.
There's good reason for the stock's strong performance, which can be seen in the increase of revenue and net income from 2021 to 2023 as the company slowly expanded its presence through the opening of new outlets. Total revenue rose from $7.5 billion in 2021 to $9.9 billion in 2023, with net income nearly doubling from $653 million to $1.23 billion over the same period.
The business also generated an average positive free cash flow of $969 million over the three years. Net restaurant openings stood at 200 to 300 each year, and Chipotle saw its store count rise from 2,768 at the beginning of 2021 to 3,437 by the end of 2023.
The company's stellar performance has carried on in the first half of 2024. Revenue rose 16.2% year over year to $5.7 billion while operating income climbed 28.5% to $1 billion. Net income improved by 28.7% to $815 million as the Mexican restaurant chain enjoyed positive comparable restaurant sales of 11.1% for its latest quarter.
The good news is that Chipotle continued to churn out healthy positive free cash flow of $858.6 million for the half-year, up 10% year over year compared with $780 million in the prior year. A total of 99 new stores were opened in 1H 2024, with 89 of these having a Chipotlane to enable customers to drive through to pick up their digital orders.
Management is optimistic about 2024 and expects full-year comparable-restaurant sales growth to hit the mid- to high single digits. The plan is to open 285 to 315 new restaurants with eight out of 10 having a Chipotlane.
Texas Roadhouse
Texas Roadhouse (NASDAQ: TXRH) owns a chain of restaurants that serve all-American food such as beef steaks, pork chops, chicken, French fries, and shakes. The company's corporate strategy is built around the serving of high-quality, freshly prepared food coupled with great service.
This focus has allowed the business to grow steadily over the years, a testament to Texas Roadhouse's strong reputation and recognizable brand. From 2021 to 2023, revenue climbed from $3.5 billion to $4.6 billion, while net income went from $245.3 million to $304.9 million. Texas Roadhouse also generates consistent free cash flow, with an average of $250 million of free cash flow churned out each year.
Like Chipotle, Texas Roadhouse's results for the first half of 2024 continued to shine. Revenue rose 13.5% year over year to $2.7 billion, while operating income surged 40.5% to $275.9 million. Net income climbed 38.4% to $233.3 million. The business opened 15 company-owned restaurants along with six franchise restaurants during the half-year, and it chalked up comparable-restaurant sales of 8.9% and 8% at company-owned and franchised restaurants, respectively.
Free cash flow is also rising, leaping 66% year over year from $133.7 million to $221.9 million. The higher free cash flow helped to fuel the rise in dividends paid from $1.10 in the first half of 2023 to $1.22 in the first six months of this year. Management believes the company can continue to grow by dishing out delicious food and excellent service to its customers. Texas Roadhouse also plans to increase its menu prices and expects positive comparable-restaurant sales for 2024 as a result.
Wingstop
Wingstop (NASDAQ: WING) offers a wide range of classic and boneless wings, tenders, and chicken sandwiches served in 11 different flavors. The company franchises the bulk of its restaurants worldwide and had around 2,279 outlets as of March 30, 2024.
The chicken specialist has seen impressive growth over the year as it has enjoyed increases in both its top and bottom lines. Revenue went from $282.5 million in 2021 to $460 million in 2023. Net income increased in tandem from $42.7 million to $70.2 million over the same period. Free cash flow also climbed steadily, going from $20.9 million in 2021 to $80.8 million in 2023.
Over these three years, Wingstop increased its international store count from 1,731 to 2,214 by opening 200 to 300 new outlets per year. The company has tripled its quarterly dividend from $0.07 in 2017 to $0.22 in the latest quarter and has also dished out several special dividends along the way.
Wingstop's momentum has carried over into the first quarter of 2024. Revenue in this period jumped 34% year over year to $145.8 million, with operating income leaping 66.5% to $42.7 million. Net income surged 83.5% to $28.7 million, and the business continued to churn out positive free cash flow of $33.5 million.
The business opened 305 international franchises during the quarter, helping to extend its presence in the U.S. and around the world. Domestic same-store sales growth also came in very high at 21.6% for 1Q 2024. Wingstop expects to open 275 to 295 global outlets for 2024, which will continue to drive its growth. Management also expects low double-digit domestic same-store sales growth for the year.
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Royston Yang has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Texas Roadhouse, and Wingstop. The Motley Fool has a disclosure policy.
3 Restaurant Stocks to Buy and Hold for Great Long-Term Potential was originally published by The Motley Fool