Despite macroeconomic challenges, the restaurant industry is well-positioned for growth due to easing inflation and rapid digitization. Therefore, quality restaurant stocks like Ark Restaurants Corp. (ARKR), Arcos Dorados Holdings Inc. (ARCO), and Potbelly Corporation (PBPB), trading cheaply under $20, could be solid buys right now.
But before we analyze the stock fundamentals, let us look at the industry landscape.
Restaurant sales rose for a sixth straight month in August. The U.S. Census Bureau reported that eating and drinking places registered total sales of $90.80 billion on a seasonally adjusted basis, up 0.3% from July’s downward-revised sales volume of $90.5 billion.
On top of it, the National Restaurant Association (NRA) believes that consumers should continue to visit restaurants in the upcoming months. Also, according to NRA’s 2023 State of the Restaurant Industry study, the U.S. restaurant industry is forecast to reach $997 billion in revenues in 2023.
Moreover, restaurants in the United States are using AI-powered tools to transform customer behavior and preferences. AI-based technology has the potential to improve user experiences, eliminate human error, and save operating expenses. Almost half of hotel businesses intend to use automation technologies and AI in the near term.
As the popularity of restaurants grows, the global foodservice market is projected to grow from $2.65 trillion in 2023 to $5.42 trillion by 2030, expanding at a CAGR of 10.8%.
Let’s delve deeper into the fundamentals of the featured Restaurants stocks starting with the third.
Stock #3: Ark Restaurants Corp. (ARKR)
ARKR owns and operates restaurants, bars, fast-food concepts, and catering services primarily in major cities and tourist destinations across the United States.
On August 8, ARKR declared a cash dividend of $0.1875 per share, which was payable to shareholders on September 12, 2023. Its annual dividend of $0.75 yields 4.93% on prevailing prices. Its dividend payouts have grown at a 7.7% CAGR over the past three years.
In terms of trailing-12-month Price/Sales, ARKR is trading at 0.29x, 65.3% lower than the industry average of 0.85x. Its trailing-12-month Price/Book multiple of 0.90 is 55.1% lower than the industry multiple of 2.01.
For the fiscal third quarter ended July 1, 2023, ARKR’s total revenues amounted to $51.05 million, while its operating income came in at $3.64 million.
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