Restaurants are go-to meeting hubs for friends, family, and colleagues. 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 4.6%. This drop is a stark contrast from the S&P 500’s 7.6% gain.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. With that said, here is one resilient restaurant stock pinned to our Google Maps and two we’re passing on.
Two Restaurant Stocks to Sell:
Darden (DRI)
Market Cap: $24.52 billion
Founded in 1968 as Red Lobster, Darden (NYSE: DRI) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.
Why Does DRI Give Us Pause?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 6.4% for the last six years
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Challenging supply chain dynamics and bad unit economics are reflected in its low gross margin of 21.6%
Darden is trading at $211.98 per share, or 19.6x forward P/E. Dive into our free research report to see why there are better opportunities than DRI.
Shake Shack (SHAK)
Market Cap: $3.75 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 Is SHAK Not Exciting?
- Poor expense management has led to an operating margin of 1.8% that is below the industry average
- 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
Shake Shack’s stock price of $92.45 implies a valuation ratio of 70.1x forward P/E. To fully understand why you should be careful with SHAK, check out our full research report (it’s free).
One Restaurant Stock to Watch:
Texas Roadhouse (TXRH)
Market Cap: $12.07 billion
With locations often featuring Western-inspired decor, Texas Roadhouse (NASDAQ: TXRH) is an American restaurant chain specializing in Southern-style cuisine and steaks.
Why Does TXRH Stand Out?
- Rapid rollout of new restaurants to capitalize on market opportunities makes sense given its strong same-store sales performance
- Same-store sales growth over the past two years shows it’s successfully drawing diners into its restaurants
- Industry-leading 21% return on capital demonstrates management’s skill in finding high-return investments
At $188.39 per share, Texas Roadhouse trades at 28.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
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 5 Strong Momentum 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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
