Chronicle - Mar 17, 2024
Small-Cap Restaurant Stocks with Unique Concepts
Investing in restaurants might not have the same glamorous appeal as investing in the latest AI technology, but its potential for outsized returns remains just as significant.
Some hedge funds are well known for their interest in the restaurant business. For instance, in Bill Ackman’s Pershing Square portfolio, two restaurant stocks carry considerable weight: Chipotle Mexican Grill CMG 0.00%↑ and Restaurant Brands International QSR 0.00%↑. Ackman highlights two advantages of investing in restaurants: their resilience to technological disruption and the relatively straightforward assessment of their moats. A successful restaurant business operates on a well-defined system, and when executed correctly, scaling from hundreds to thousands of stores is achievable.
Here are five restaurant stocks that have unique concepts. They are not as big as Chipotle or Restaurant Brands, so theoretically, their growth potential is still huge.
CAVA Group CAVA 0.00%↑
CAVA group (CAVA) operates a chain of restaurants across the United States under its eponymous brand. Additionally, it distributes dips, spreads, and dressings through grocery stores. Its concept can be likened to a Mediterranean version of Chipotle, but with a unique emphasis on health-conscious offerings. CAVA sets itself apart by incorporating a healthy theme into its menu by disclosing the number of calories for each item.
Currently, CAVA has 309 outlets across the U.S., and aims to open about 50 more this year. While the company operates at a profit, its current profitability remains small compared to its market cap. In 2023, CAVA recorded a revenue of $729 million with an EBITDA of $74 million; very small compared to its $7.3 billion market cap.
It is operating at profit, although the profit number is still too small compared to its market cap. For 2023, CAVA booked $729 million in revenue with $74 million in EBITDA.
CAVA expects 3-5% same store sales growth in 2024. Combined with 50 new store openings, the consensus expects CAVA to book 19% revenue growth this year.
Dutch Bros BROS 0.00%↑
Dutch Bros (BROS) is renowned for its distinctive drive-thru coffee shops, but its offerings extend beyond just coffee. The company also boasts a diverse menu featuring flavored teas, lemonades, shakes, and energy drinks, catering to a wide range of tastes and preferences. Embracing a youthful and woman-friendly image, Dutch Bros positions itself as a vibrant and inclusive brand that resonates with its target demographic.
BROS operates 831 stores nationwide, with about 35% franchised. In 2024, it plans to add 150–165 new outlets and expects low-single-digit same-store sales growth. However, market consensus predicts impressive 25% revenue growth and 20% EBITDA growth for the year, showcasing high investor expectations.
Kura Sushi USA KRUS 0.00%↑
Kura Sushi USA (KRUS) offers unique Japanese dining with its conveyor belt sushi concept, where customers select from an array of dishes as they pass by. With its automated ordering systems, KRUS caters to both quick bites on the go and leisurely meals with friends and family.
KRUS is a subsidiary of Kura Sushi Inc., a Japan-based revolving sushi chain with over 500 restaurants around the world. KRUS has 56 outlets in the U.S., and plans to add 12–14 new outlets in 2024.
KRUS reported revenue of $187 million and $14 million in EBITDA, a modest figure in contrast to its $1.1 billion market cap. However, market consensus predicts a robust 29% revenue growth for KRUS in 2024.
El Pollo Loco Holdings LOCO 0.00%↑
El Pollo Loco Holdings (LOCO) specializes in fire-grilled, fresh, citrus-marinated chicken in an open kitchen in front of customers. It allows guests to enjoy the ‘theater’ while dine-in. Its menu includes burritos, salads, tostadas, bowls, stuffed quesadillas, and chicken entrees.
LOCO currently operates 494 outlets in the United States and intends to add 7-9 new locations this year. Its same-store sales growth is only 0.9%, and market consensus forecasts a modest 0.2% revenue growth for LOCO this year.
GEN Restaurant Group GENK 0.00%↑
GENK offers a unique dining experience as a Korean BBQ all-you-can-eat restaurant. At GENK, customers have the opportunity to cook their food over open flames, choosing from a selection of three main proteins: chicken, beef, and seafood. Priced at approximately $30 for the all-you-can-eat menu, GENK's concept is popular in Asia, where friends and families gather around the flames to cook their own meals.
GENK operates 37 outlets and aims to expand by opening 10–12 additional locations this year, with a future target of reaching 250 outlets across the U.S. GENK will fund the new outlets with internal cash flows. However, despite this ambitious expansion plan, last year's same-store sales growth saw only a modest increase of 0.6%. Consequently, market consensus forecasts a modest 12% revenue growth for GENK this year, far below its new outlet growth.
IPO — Performance
