Changing consumer demand worldwide, increasing consumer spending, and favorable economic aspects have positioned the restaurant industry for solid growth. Further, the industry’s prospects appear promising with evolving technologies, opening new opportunities.

Given this backdrop, it could be wise to consider value restaurant stocks Arcos Dorados Holdings Inc. (ARCO), Dine Brands Global, Inc. (DIN), and The Cheesecake Factory Incorporated (CAKE) for exciting returns in 2025.

The restaurant industry has shown strong resilience in 2024 amidst inflation headaches and rising costs. Executives of major restaurant companies appear highly optimistic about 2025, with the recent interest rate cuts announced in the second half of 2024 and increasing consumer spending likely to boost the market. Also, digital technologies will contribute to further growth and expansion.

The United States full-service restaurant market is expected to witness steady growth amid growing traveler attractions, rising consumer spending, globalization, and changing consumer preferences. The market size is estimated to expand at a CAGR of 11.3%, resulting in a market value of $617.40 billion by 2030.

Also, the all-pervasive AI technology has contributed significantly to the restaurant industry’s technological revolution. Features like AI-powered voice assistants are transforming customer interactions, enabling hands-free ordering, reservations, and inquiries. The technology also streamlines operations and enhances the overall dining experience for customers.

AI in the food and beverages market is expected to grow to $56.47 billion by 2029 at a noteworthy CAGR of 42.7%, owing to advanced product development, eco-friendly practices, and enhanced customer engagement.

Amidst such industry dynamics, investors could consider value restaurant stocks to capitalize on the trends and yield high benefits. Therefore, let’s take a look at the fundamentals of the three best Restaurant industry stock picks, beginning with the third choice.

Stock #3: Arcos Dorados Holdings Inc. (ARCO)

Headquartered in Montevideo, Uruguay, ARCO operates as a franchisee of McDonald’s restaurants. The company has the exclusive right to own, operate, and grant franchises of McDonald’s restaurants in 20 countries and territories.

In terms of forward EV/EBIT, ARCO is trading at 10.43x, 32.6% lower than the industry average of 15.47x. Also, the stock’s forward non-GAAP P/E of 11.03x is 35.4% lower than the industry average of 17.08x. Similarly, its forward Price/Sales of 0.34x is 65.6% lower than the industry average of 0.98x.

On January 2, 2025, ARCO announced the renewal of its Master Franchise Agreement with McDonald’s. The parties finalized a new, 20-year MFA, which became effective from January 1, 2025, and replaced the previous MFA. The latest MFA also includes a renewal option, at McDonald’s discretion, for a new, 20-year MFA, beginning January 1, 2045.

During the third quarter that ended September 30, 2024, ARCO’s total revenues increased marginally year-over-year to $1.13 billion, and its operating income was $79.83 million for the quarter. Net income attributable to ARCO and EPS amounted to $35.21 million and $0.17 for the period, respectively.

Analysts expect ARCO’s revenue and EPS for the fiscal year (ending December 2025) to increase 6.5% and 20.9% year-over-year to $4.77 billion and $0.78, respectively. Further, the company surpassed the consensus revenue estimates in each of the trailing four quarters.

ARCO’s stock has declined 7.7% over the past month to close the last trading session at $7.15.

ARCO’s robust outlook is reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has an A grade for Value. It is ranked #17 out of 39 stocks in the Restaurant industry.

Click here to access additional ARCO ratings for Sentiment, Quality, Stability, Momentum, and Growth.

Stock #2: Dine Brands Global, Inc. (DIN)

DIN owns, franchises, and operates restaurants internationally. The company operates through six segments: Applebee’s Franchise Operations; International House of Pancakes (IHOP) Franchise Solutions; Fuzzy’s franchise operations; Rental Operations; Financing Operations; and Company-Operated Restaurant Operations.

DIN’s forward non-GAAP P/E of 4.58x is 73.2% lower than the industry average of 17.08x. Further, the stock’s forward EV/EBITDA of 7.41x is 29.8% lower than the 10.56x industry average. Similarly, its forward Price/Sales of 0.50x is 48.6% lower than the industry average of 0.98x.

On November 22, 2024, DIN’s Board of Directors declared a quarterly cash dividend of $0.51 per share of common stock. The dividend was paid on January 7, 2025, to the company’s stockholders of record at the close of business on December 20, 2024.

DIN pays an annual dividend of $2.04, which translates to a yield of 7.66% at the current share price. Its four-year average dividend yield is 2.81%. Moreover, the company’s dividend payouts have increased at a CAGR of 72.1% over the past three years.

For the third quarter that ended September 30, 2024, DIN reported total revenues of $195.03 million, and its gross profit for the quarter was $93.32 million. The company’s adjusted EBITDA of $61.90 million indicates growth of 2.2% from the prior year’s quarter.

In addition, net income available to common stockholders stood at $18.51 million, or $1.24 per share, up 2.5% and 4.2% year-over-year, respectively.

Analysts expect DIN’s revenue for the fiscal year (ending December 2025) to increase 0.7% year-over-year to $814.85 million, while its EPS for the same year is expected to grow 1.4% year-over-year to $5.90. Moreover, the company topped the consensus EPS estimates in three of the trailing four quarters.

Shares of DIN slumped 14.2% over the past month to close the last trading session at $26.64.

DIN’s POWR Ratings reflect its promising prospects. The stock has an A grade for Value and a B for Quality. DIN is ranked #10 of 39 stocks within the Restaurant industry.

To see additional POWR Ratings of DIN for Growth, Momentum, Sentiment, and Stability, Click here.

Stock #1: The Cheesecake Factory Incorporated (CAKE)

CAKE engages in the restaurant business and operates two bakeries that produce cheesecakes and other baked products for its restaurants, international licensees, third-party bakery customers, external foodservice operators, retailers, and distributors.

In terms of forward Price/Sales, CAKE is trading at 0.70x, 28.7% lower than the industry average of 0.98x. Likewise, the stock’s forward EV/Sales multiple of 1.21 is 8.4% lower than the industry average of 1.32. Also, its forward Price/Cash Flow of 6.99x is 38.8% lower than the industry average of 11.42x.

During the third quarter, CAKE opened four new restaurants, which include one Flower Child location and three FRC restaurants. Further, recently, the company opened three new restaurants, including one North Italia, one Flower Child, and one Blanco location. It also projected to open up to 22 new restaurants in fiscal 2024

For the third quarter that ended October 1, 2024, CAKE’s revenues increased 4.2% year-over-year to $865.47 million. Its income from operations grew 77.1% from the year-ago value to $33.70 million. Also, the company’s adjusted net income came in at $28.18 million or $0.58 per share, up 48.1% and 48.7% from the prior year’s quarter, respectively.

Street expects CAKE’s revenue and EPS for the fourth quarter (ended December 2024) to increase 4% and 13.7% year-over-year to $912.05 million and $0.91, respectively. Also, the company surpassed the consensus EPS estimates in all four trailing quarters.

CAKE’s shares have gained 22.4% over the past six months and 51.7% over the past year to close the last trading session at $48.76.

CAKE’s sound fundamentals are reflected in its POWR Ratings. The stock has an A grade for Growth. It also has a B grade for Value. Within the Restaurant industry, CAKE is ranked #8 of 39 stocks.

In addition to the POWR Ratings we’ve stated above, we also have CAKE ratings for Quality, Momentum, Stability, and Sentiment. Get all CAKE ratings here.

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CAKE shares were trading at $51.65 per share on Tuesday afternoon, up $2.89 (+5.93%). Year-to-date, CAKE has gained 8.87%, versus a 2.79% rise in the benchmark S&P 500 index during the same period.

About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions. More...

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