From fast food to fine dining, restaurants play a vital societal role. But it’s not all sunshine and rainbows as they’re notoriously hard to run thanks to perishable ingredients, labor shortages, or volatile consumer spending. These factors have weighed on the industry over the past six months as its 5% return has fallen short of the S&P 500’s 14.2% gain.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. With that said, here is one restaurant stock poised to generate sustainable market-beating returns and two we’re passing on.
Two Restaurant Stocks to Sell:
Wendy's (WEN)
Market Cap: $1.45 billion
Founded by Dave Thomas in 1969, Wendy’s (NASDAQ:WEN) is a renowned fast-food chain known for its fresh, never-frozen beef burgers, flavorful menu options, and commitment to quality.
Why Are We Out on WEN?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 3.4 percentage points
- High net-debt-to-EBITDA ratio of 8× could force the company to raise capital on unfavorable terms if market conditions deteriorate
Wendy's is trading at $7.64 per share, or 15.4x forward P/E. Dive into our free research report to see why there are better opportunities than WEN.
Shake Shack (SHAK)
Market Cap: $2.57 billion
Started as a hot dog cart in New York City's Madison Square Park, Shake Shack (NYSE:SHAK) is a fast-food restaurant known for its burgers and milkshakes.
Why Do We Think Twice About SHAK?
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
- Poor free cash flow margin of 1.2% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $63.52 per share, Shake Shack trades at 50.9x forward P/E. If you’re considering SHAK for your portfolio, see our FREE research report to learn more.
One Restaurant Stock to Watch:
Brinker International (EAT)
Market Cap: $8.94 billion
Founded by Norman Brinker in Dallas, Brinker International (NYSE:EAT) is a casual restaurant chain that operates the Chili’s, Maggiano’s Little Italy, and It’s Just Wings banners.
Why Are We Fans of EAT?
- Average same-store sales growth of 14.6% over the past two years indicates its restaurants are resonating with diners
- Revenue base of $5.81 billion gives it economies of scale and some negotiating power with suppliers
- Free cash flow margin jumped by 1.9 percentage points over the last year, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Brinker International’s stock price of $214.28 implies a valuation ratio of 16x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.