Restaurants increase convenience and give many people a place to unwind. Still, their demand can ebb and flow with the broader economy because consumers can always cook meals at home when times are tough, and the market seems to be baking in a downturn for the industry - over the past six months, it has pulled back by 5%. This performance is a far cry from the S&P 500’s 6.7% ascent.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. On that note, here is one restaurant stock poised to generate sustainable market-beating returns and two that may face trouble.
Two Restaurant Stocks to Sell:
Yum China (YUMC)
Market Cap: $19.56 billion
One of China’s largest restaurant companies, Yum China (NYSE: YUMC) is an independent entity spun off from Yum! Brands in 2016.
Why Is YUMC Not Exciting?
- Annual sales growth of 5.1% over the last six years lagged behind its restaurant peers as its large revenue base made it difficult to generate incremental demand
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Gross margin of 18.6% reflects the bad unit economics inherent in most restaurant businesses
Yum China’s stock price of $55.47 implies a valuation ratio of 19.2x forward P/E. Dive into our free research report to see why there are better opportunities than YUMC.
Shake Shack (SHAK)
Market Cap: $3.79 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?
- Operating margin of 1.8% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Earnings growth over the last six years fell short of the peer group average as its EPS only increased by 8.9% annually
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $93.57 per share, Shake Shack trades at 68x forward P/E. Read our free research report to see why you should think twice about including SHAK in your portfolio.
One Restaurant Stock to Buy:
Wingstop (WING)
Market Cap: $7.69 billion
The passion project of two chicken wing aficionados in Texas, Wingstop (NASDAQ: WING) is a popular fast-food chain known for its flavorful and crispy chicken wings offered in a variety of sauces and seasonings.
Why Will WING Beat the Market?
- Customers are lining up to eat at its restaurants as the company’s same-store sales growth averaged 8.6% over the past two years
- Excellent operating margin of 26.1% highlights the efficiency of its business model
- Strong free cash flow margin of 16% enables it to reinvest or return capital consistently
Wingstop is trading at $276.28 per share, or 53.6x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
