5 Undervalued Restaurant Stocks To Own Now!
Restaurants could be amazing compounders if you buy the right ones at the right time.
Restaurants are an interesting breed.
They are so infamous that in his famous book “0 To 1” Peter Thiel counts restaurants as one of the worst businesses to start.
There are few reasons for this:
Entry barriers are very low so everybody can enter anytime.
Competition is insane because of the low entry barriers and no brand loyalty.
It’s hard to scale because of the food quality, safety and standardization issues.
Ask your friends who have tried operating a restaurant and they will tell you.
On the other hand, they tend to be really good investments.
Hear it out from Bill Ackman:
This was 4 years ago. His Chipotle position made 6x since then.
Restaurants tend to be good investments exactly because of the reasons that make them bad businesses to start.
If a restaurant business has a little bit of achievement, it’s despite the factors that make them bad businesses. Since it’s really hard to survive those factors, those who could make it tend to keep thriving for a very long time and generate amazing returns.
I have experienced this myself.
I made 5 times of my money in a year in one investment: Carrols Restaurant Group.
This was the biggest Burger King franchise in the United States with more than a thousand stores. They got hit big time by Covid and then they suffered from quality issues.
I looked at the balance sheet, followed the management and saw that the turnaround plan was underway and it was already giving its first fruits.
I invested in the stock in 2023 at an average price of $2 per share.
In early 2024, stock quadrupled to $8 and then the group got acquired by Restaurant Brands International for $9.5 per share.
The problem is that restaurant stocks are now too expensive.
Chipotle, Cava, SweetGreen, ShakeShack, WingStop are trading at absurdly high valuations.
This is why I have compiled a list of high quality restaurant stocks that aren’t too widely known, have bright future prospects and undervalued.
I have investments in some of these businesses and I can further invest in others too. Keep in mind that Carrols was in this list when I invested in it and it made 5x in a year.