With volatile inflation and recession worries, restaurant stocks appear to be well placed to perform well due to their recession-protective nature. Thus, investors looking for more diversity can now add quality Nathan’s Famous (NATH) and Rave Restaurant Group (RAVE) stocks to their portfolios. Read more….
Expectations of an economic downturn amid macroeconomic headwinds and regional bank failures undermined investor sentiment. Restaurant stocks that tend to be great defensive pickups during downturns might be considered now. Against this background, let’s look at the shares of some restaurants, Nathan’s Famous Inc. (NAT) and Rave Restaurant Group, Inc. (RAVE) Now.
Combined with macroeconomic headwinds, the recent turmoil in the financial system has affected the entire economy to some extent. Consequently, heightened fears of a recession undermined investor optimism. The restaurant industry has not been left behind.
However, despite serious challenges such as sky-high inflation, rising interest rates, supply chain disruptions and labor shortages, industry professionals optimistic in the face of these recessions.
To cope with the most serious labor shortage problem, some enterprises have raised wages to attract labor to meet customer requirements, while some turned to automation escape from the grip of rising wages. For example, some restaurants are using self-order kiosks or delivery apps to reduce the need for people.
Mark Wasilewski, head of restaurant franchise finance at TD Bank, said: “Our survey showed that most Restaurant franchise operators plan to invest in digital store systems and delivery systems, and in re-display and remodeling.”
According to Statista, the U.S. online food delivery market is forecast to reach $231.30 billion in revenue in 2023 and grow at a rate CAGR 13.6% between 2023 and 2027.The market for restaurants and mobile food services is expected to reach $3.79 trillion in 2027, growing by CAGR 5.8%.
In addition, given the current market dynamics and the strong long-term outlook for the industry, the fundamentally strong stocks of NATH and RAVE restaurants could be a good buy now.
Nathan’s Famous Inc. (NAT)
NATH operates in the food service industry as the owner of franchised restaurants under the brand name Nathan’s Famous. The company also sells Nathan’s Famous branded merchandise through various distribution channels.
On February 2, NATH’s board of directors increased its quarterly dividend by 11% and declared a quarterly dividend of $0.50 per share paid to shareholders on March 3, 2023.
Over the past three years, NATH’s dividend payouts have grown by 3.9% per annum. While NATH has a four-year average dividend yield of 2.30%, its current $2 annual dividend equates to a 2.65% yield at prevailing prices.
NATH’s revenue grew by 7.3% and 4.4% on average over the past three and five years, respectively. Moreover, its EBITDA and EBIT are up 8.8% and 9.2% CAGR over the past three years, respectively..
In terms of net income margin over the past 12 months, NATH’s 14.45% is 217.1% higher than the industry average of 4.56%. Its 22.63% trailing is 12 months COMPANY 465.6% higher than the industry average of 4%.
NATH’s total revenue increased slightly year-over-year to $26.15 million for the fiscal third quarter ended December 25, 2022. The company’s net income increased 53.2% year-over-year to $3.26 million and its earnings per share was $0.79, up 51.9% year-over-year. Adjusted EBITDA was $6.90 million, up 16.8% year-over-year for the same quarter.
Shares are up 38.7% over the past year and 18.8% over the past six months, ending the latest trading session at $75.18.
The strong foundations of NATH are reflected in his Power Ratings. It has an overall rating of A, which corresponds to a strong buy in our own rating system. POWR ratings evaluate stocks on 118 different factors, each of which has its own weight.
It is rated “A” for quality and “B” for feel. It ranks second out of 46 A stocks. Restaurants industry.
To see additional NATH rankings for growth, value, momentum and stability, Click here.
Rave Restaurant Group Inc. (RAVE)
RAVE operates pizza buffets, delivery/take-away and express delivery restaurants under the Pizza Inn brand worldwide. It operates through three segments: the Pizza Inn franchise; Five Pies Franchise; and restaurants owned by the company.
In terms of net income margin over the past 12 months, the 70.13% RAVE is significantly higher than the industry average of 4.56%. At 60.90%, NATH’s rotation over the last 12 months is significantly higher than the industry average of 4%.
RAVE EBITDA and EBIT have grew by 4.8% and 7.7% average annual growth rates over the past three years, respectively.
In the second fiscal quarter ending December 25, 2022, RAVE’s revenue increased 6.3% year-over-year to $2.87 million. The company’s adjusted EBITDA increased 8.8% year-over-year to $615,000. In addition, its net income and earnings per share were $348,000 and $0.02, respectively.
For the six months ended December 25, 2022, RAVE cash generated from operating activities was $792,000 compared to $14,000 for the six months ended December 26, 2021.
Shares are up 41.4% over the past year and 2.1% over the past six months, ending the latest trading session at $1.47.
Not surprisingly, RAVE has an overall rating of A, which means a strong buy in our POWR rating system.
It is rated “A” for quality and “B” for value and mood. It ranks 4th in the same industry.
Click here to see additional RAVE scores for Growth, Momentum, and Stability.
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NATH stock was flat in premarket trading on Tuesday. Since the start of the year, NATH has gained 12.57% compared to the benchmark S&P 500’s 7.87% gain over the same period.
About the author: Shristi Suman Jayaswal
The dynamics of the stock market sparked Shristi’s interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. With a master’s degree in accounting and finance, Sristi hopes to deepen her experience in investment research and better guide investors.
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