Very few brands have made a big enough splash in their respective industry, allowing them to shake off the cyclicality inherent in their products. In the case of the restaurant industry, seasonality is a known risk that typically brings significant swings in financials.
A select group of executives have worked around these issues, achieving what has turned out to be deep brand entrenchment, offering superior profitability in relation to the rest of the restaurant industry.
Investors can save time by reading over the following points behind today's analyst bullishness over these stocks, and maybe, if they are lucky, even make a little bit of money by considering a small portfolio allocation.
Who doesn't love a chart that seems only to go up and to the right? Well, that is the case with shares of Wingstop (NASDAQ: WING) over the past six years.
As stock prices are a consensus reflection of a business's underlying quality and future expectations, it would be wise to dissect the reason behind this pattern, and most importantly judge whether it has room to continue further into the future.
Analysts are voting on their views on the subject, as their consensus price targets land on $193.45 a share, making today's market price an attractive 11.2% cheaper than these predictions.
The driver behind this upside? Well, earnings projections for the year 2024 are calling for a 16.1% jump from today's levels. Typically, when all else is the same, EPS drives the value of a stock so that you can take this assumption to the bank for now.
Solid fundamentals distinguish Wingstop from the rest of the industry, a trend that markets are rewarding in all the right ways to push for a higher stock price.
Considering that the stock has declined more than 20% from its recent highs, the financials are as crucial as ever in justifying a purchase at a discount.
While the rest of the restaurant industry has averaged sales growth of 7.4% in the past five years, Wingstop reported same store revenue jumps of 16.8% in the past twelve months alone.
With a more impressive 21.6% jump in net income, the stock's year to date performance of 30%, while impressive, has a long way to go before it truly reflects the constant growth of the business behind it.
Among the retail stocks, Starbucks (NASDAQ: SBUX) is one of its space's strongest - if not the strongest - moats. Besides, Starbucks is now at the epicenter of one of the fastest-growing consumer takeover plays in the United States; it is one name pregnant with more upside than analysts recognize today.
The news follows the stock price, so when Starbucks stock was trading below $80 a share a year ago, all the media cared about was the potential risks of workers unionizing and how Starbucks was essentially doomed.
Now that the stock has swiftly recovered, those trends have gone with the wind. Analysts are also bringing a renewed wave of bullishness to the name, as they now predict a net upside of 19.1% from today's prices.
Despite these analyst ratings being a decent double-digit driver, investors can come up with even higher targets of their own. During the latest quarterly earnings press release, Starbucks reported a net comparable sales growth of 10%, of which 4% stems from higher ticket prices.
Key word is 'higher ticket prices' because a brand moat allows Starbucks to keep up with inflation and not sacrifice its sales volume much, which grew by 5%.
This is because people will still pay a higher price to have their fix of the green Medusa every morning and display its logo as social currency.
Moreover, China locations represent a more significant share of sales by the quarter, and the region's consumer spending is quietly setting up for a boom.
Chipotle Mexican Grill
Walk into any Chipotle Mexican Grill (NYSE: CMG), and you will see a vast variety of - loyal - customers. From college students and fitness enthusiasts to virtually every industry worker on their lunch break, Chipotle is the place to go for good guac.
In this case, Green comes from other places than guacamole, as analysts are pointing to a 10.6% upside potential from today's prices. Yet, the expected 20.8% EPS jump in the next twelve months would be nearly 1.4x higher than the industry's average of 14.9%.
As is custom for these industry high-achievers, Chipotle delivered an impressive 13.6% increase in revenues over the past twelve months while boosting both gross and operating margins as food supply chains report massive improvements.
What's more, management has guided a full year 2023 with 255 to 285 new store openings, further pushing the scalability and income-generating power this brand can achieve. Judging by the past stock performance, history will indeed repeat itself.