The return of the meme stock frenzy has seen online retailer Blue Apron (APRN) gain more than 90% in the past month. However, the rally is not fueled by fundamentals. That’s why we think the fundamentally solid restaurant stocks Arcos Dorados (ARCO), Nathan’s Famous (NATH), and Good Times Restaurants (GTIM) could be better investments. Read more….
With the return of the meme stock maniaInternet retailer Blue Apron Holdings, Inc. (APRN) is up 91.5% in the past month to close the 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 supported 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 net loss per share was $0.68.
The stock is 12 months behind ROE from a negative 212.44%, which is significantly lower than the industry average of 12.32%. In addition, analysts expect EPS to remain negative at least through fiscal year 2023.
On the other hand, despite the challenges posed by the rapid rise in consumer prices, Americans seem to have maintained their appetite for eating out. The U.S. Census Bureau reported monthly food and beverage sales of $86.10 billion in Julyan increase of 12% compared to July 2021. In addition, the global foodservice market is expected to reach $4.43 trillion by 2028, representing 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 owns the exclusive rights to own, operate and franchise 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 increased 192% year-over-year to $14.58 million. Net earnings per common share improved 250% year-over-year to $0.07.
The consensus EPS estimate of $0.45 for fiscal 2022 points to an 87.5% year-over-year increase. Similarly, the consensus revenue estimate for the same year to $3.36 billion reflects a 26.8% improvement over the prior year. In addition, ARCO has an impressive history of surprising gains as it has surpassed consensus EPS estimates in three of the last four quarters.
The stock is up 35.5% over the past year and 33.6% so far to close out its latest 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 taking into account 118 different factors, with each factor being optimally weighted.
ARCO has a value figure of A and a growth and sentiment figure of B. In the 53 stocks Restaurants industry, it ranks third.
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 the owner of franchised restaurants under the Nathan’s Famous brand. The company also sells Nathan’s Famous trademarked products through various distribution channels.
Effective August 5, 2022, the company announced a quarterly dividend of $0.45 per share, payable to shareholders on September 22. The company also reported that it had paid the regular $0.45 per share dividend announced on June 10. This reflects the company’s cash-generating ability.
NATH’s total revenue increased 26.8% year over year to $39.72 million in the fiscal first quarter ended June 26. Net income and earnings per share improved 23.8% and 24.3% year-over-year to $7.14 million and $1.74.
Over the past three months, the stock is up 34.5% to close its last trading session at $62.39. It is up 11.6% in 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 Feeling. It ranks number 2 in the hospitality 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 the luxury fast-service drive-through restaurant Good Times Burgers & Frozen Custard, and owns, operates, franchises and licenses the full-service luxury casual dining restaurant Bad Daddy’s Burger Bar.
On July 12, GTIM announced that same-store sales for the third quarter ended June 28 were up 1.6% for the Good Times brand from the same quarter last year and 5.3% for the Bad Daddy’s brand. compared to the same quarter last year.
For the fiscal third quarter ended June 28, GTIM’s total net revenue increased 7.5% year over year to $36.50 million. This can be attributed to a 7.6% year-over-year increase in restaurant sales to $36.27 million.
Shares of GTIM are up 12.2% in the past three months to close out the latest trading session at $2.94.
This promising prospect is reflected in GTIM’s POWR Ratings. The stock has an overall A rating, which equates to a strong buy in our proprietary rating system.
GTIM has a value class A and a growth, momentum, sentiment and quality class B. It is number 1 in the same industry.
In addition to the POWR Rating figures that we have listed above, one can see the GTIM rating for stability here.
ARCO shares traded at $7.85 a share Thursday morning, up $0.06 (+0.77%). Year-to-date, ARCO is up 36.13%, compared to an increase of -11.83% in the benchmark S&P 500 index over the same period.
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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