It’s a tale of two markets in the restaurant space right now.
Some fast-casual chains, such as Cava Group (NYSE:CAVA), are soaring to new all-time highs. At the same time, other restaurant operators are seeing their shares careen to new multi-year lows.
Restaurants are a competitive field, and not all of the beaten-down chains will see a significant recovery. That’s especially true as inflation and a slowing economy are starting to strain consumers’ wallets. However, these three restaurant stocks to buy near 52-week-lows are compelling values that are set to heat up in the coming months.
Portillo’s (PTLO)
Portillo’s (NASDAQ:PTLO) is a small restaurant chain that specializes in Chicago-style foods such as hot dogs, sausages, Italian beef sandwiches, and milkshakes.
The company went public with just 67 locations in nine states. Investors have reasonably questioned how well the company’s distinct menu will work outside of its already established core markets, such as the Chicago area.
However, Portillo’s is pressing on with aggressive growth plans, adding locations in fast-growing states such as Texas, Florida and Arizona. If these new locations pay off for Portillo’s, it’d be a total game-changer, converting it from a regional outfit to a nationwide player. And while the company is fairly small, it is already reporting positive earnings per share.
It remains to be seen how Portillo’s will ultimately play out. However, with the stock down nearly 50% over the past year, a value opportunity has appeared even as revenues continue to grow at a reasonable rate. Analysts also agree, with Portillo’s being tabbed as a consensus strong buy pick in the restaurant space.
Dine Brands (DIN)
Dine Brands (NYSE:DIN) is a holding company that operates several restaurant concepts, including Applebee’s, IHOP, and Fuzzy’s Taco Shop.
The company primarily operates via a franchising model, meaning that it collects a percentage of sales from its franchise store partners. This insulates Dine from economic volatility, as the underlying store operators, not the parent company, have the most exposure to near-term economic swings.
Due to the sticking power of the Applebee’s and IHOP brands, Dine has sailed through various economic and political shocks over the decades.
The company is in another down cycle, with DIN stock falling 35% over the past year. This comes as Dine estimates that revenues will be up about 1% this year. That’s not great, especially in these inflationary times, but it’s hardly a business meltdown either.
At the same time, leading peer Brinker’s International (NYSE:EAT), which runs the Chili’s chain, is up 97% over the past year. Brinker’s itself is only set to grow revenues about 5% this year. Despite that minimal difference in top-line growth, EAT stock is now up to 18 times forward earnings, while DIN stock sells at just 6 times forward earnings. Dine Brands is a deep value at today’s price.
Yum China (YUMC)
Yum China (NYSE:YUMC) is the Chinese operator of Yum! Brands’ (NYSE:YUM) restaurant chains. Specifically, Yum China runs KFC, Pizza Hut, and Taco Bell within China, along with owning and operating some domestic restaurant brands such as Little Sheep.
As you’ve probably heard, the Chinese economy is in a slump. Leading Chinese technology and e-commerce companies have seen their share prices collapse over the past few years amid this prolonged economic slowdown.
Not surprisingly, these headwinds have cast a long shadow on consumer-focused names such as Yum China. YUMC stock is down by half from its 2023 peak.
This seems like a classic case of guilt by association. While China’s economy is undoubtedly struggling, Yum China’s affordable restaurant brands are faring all right.
The company enjoyed record-high revenues of $11 billion in 2023, and analysts see that jumping to $11.7 billion this year. Meanwhile, earnings per share are expected to climb 9% this year and return to double-digit growth in 2025. Shares trade at just 15 times forward earnings. If Yum China can achieve these sorts of results during an economic slump, just imagine how well its sales figures will look once the Chinese economy recovers.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.