The existence, growth and success of quick service restaurant majors, such as McDonald’s (MCD, Financial), are being threatened by a new category of restaurants referred to as Fast Casual chains. This new breed of snack makers are slowly encroaching on the market that was once dominated by burgers and fries and everything fattening. New age fast casual chains such as Chipotle Mexican Grill (CMG, Financial), Buffalo Wild Wings (BWLD, Financial) and Cheesecake Factory (CAKE, Financial) are gaining traction and are giving the traditional fast food majors a run for their money. Here’s a look at the three.
Chipotle Mexican Grill
The Denver based burrito maker has taken the Wall Street by surprise as its stock witnessed a 28%-plus growth year to date. This phenomenal performance clearly reflects what the investors and the market thinks about the snack maker and its upside potential. Chipotle has set a standard of its own and is gaining popularity among health conscious consumers. In one of my recent reports I had highlighted the factors that are helping the fast casual giant win hearts, such as its highly customizable menu, its innovative marketing tactics and the ambience in its stores.
These factors have come together to provide the ultimate healthy dining experience. Its concept of “food with integrity” has played well with the customers who love to decide what goes in their food. From investment point of view, so far this year the stock has overshadowed S&P 500’s 13.19% return (year to date) and looks like a good bet for the long run.
Buffalo Wild Wings
Headquartered in Minneapolis, Buffalo Wild Wings has a positioning that’s much different from Chipotle’s. The company aims to offer the ultimate social experience for sports fans through its casual dining restaurants and sports bars. Compared to McDonald’s, it’s a much smaller player specializing in chicken wings and sauces which are complemented by live sports at its outlets. However, size doesn’t matter in a fight such as this. Thanks to its expertise in wings and sauces, it has a loyal set of customers who won’t settle for anything other than Buffalo’s wings. If you all can remember, McDonald’s tried its hands on the Mighty Wings, but the whole things turned into a flop and the Big Mac maker ended up wasting millions of tons of chicken wings.
The company is growing fast and in the last 12 years it has opened more than 800 restaurants, with plans of further expansion. This year Buffalo opened 50 new restaurants that boosted its sales by 29% over the previous year. From investment point of view, half of analysts covering the stock have a buy recommendation, while the other half thinks it’s good to hold. Year to date Buffalo’s stock price has surged 24%, way above the market return, and much better than McDonald’s fall of 2.13%.
The Cheesecake Factory Inc
Headquartered in Calabasas Hills, California, Cheesecake Factory specializes in a variety of desserts, salads, pizzas, pastas and many other food items. The company runs 175 full-service dining restaurants and has two production facilities – one based out of California and another located in North Carolina. In its latest quarter Cheesecake Factory reported impressive 6.3% increase in its revenue over prior year period. The company has also been undertaking expansion activities to enter markets such as Middle East, North Africa, Central and Eastern Europe, Russia, Turkey, Mexico and Chile.
According to a Zacks report, “Driven by huge demand, Cheesecake Factory has been opening restaurants and plans to continue the trend, going forward. The company remains focused on opening its restaurants at high grade sites to hit targeted returns. The restaurants opened over the past three years are performing better than the erstwhile locations.”
From investment point of view, currently the stock is trading at 24-times its earnings. In comparison to this Chipotle is trading at 53-times its earnings and Buffalo is trading at 36-times its earnings. Since these 3 casual restaurant chains function in the same space, they all are going to face similar growth opportunities. In such a situation, Cheesecake’s P/E seems to be quite attractive to an investor. Even 80% of analysts covering the stock are optimistic about its upside potential. So, maybe it’s a good time to initiate position in the stock.
