Please ensure Javascript is enabled for purposes of website accessibility

Ruby Tuesday, Noodles & Co., and Sonic Bounce Back

By Rick Munarriz - Apr 3, 2017 at 9:14AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Three restaurant stocks came through with double-digit percentage gains last week.

If you believe some of the industry pundits, we may be in a restaurant recession. But that doesn't mean investors in some of eatery chains can't come out on top every so often. Shares of Ruby Tuesday (RT), Noodles & Co. (NDLS 5.62%), and Sonic (SONC) were some of last week's biggest winners, climbing 15%, 28%, and 10%, respectively.

Ruby Tuesday moved higher after Leon Capital, a real estate-focused investment company took a 9.5% stake in the struggling casual-dining chain. Noodles & Co. kept moving higher after a private placement earlier in the month fortified its balance sheet. Sonic gained ground after posting encouraging financial results. They're all different concepts -- representing casual dining, fast casual, and fast food -- but all three stocks rewarded their investors with double-digit percentage gains last week. 

Ice cream shakes and beverages at Sonic.

Image source: Sonic Drive-In.   

Order up

Leon Capital took a 9.5% stake in Ruby Tuesday toward the end of the prior week and in a regulatory filing mentioned that it was making an opportunistic purchase of the out-of-favor stock. Given Leon Capital's laser focus on real estate and Ruby Tuesday's announcement earlier in the month that it was exploring strategic alternatives, it wouldn't be a surprise if Leon Capital's valuing the struggling eatery's hard assets.

Noodles & Co. also attracted a significant investor, but at least the fast-casual pasta specialist is making some coin in the process. Noodles & Co. completed a private placement earlier in March, raising $31.5 million by selling nearly 8.9 million shares to Mill Road Capital at a price of $3.55 a share. The price was where the stock was at the time, and the shares have since soared 62%. 

Sonic cranked out mixed results for its fiscal second quarter. Revenue declined, held back by a rough 7.4% drop in comps, and the adjusted bottom line didn't fare much any better, declining 17% to $0.15 a share. Yet the stock moved higher because Sonic's outlook was far more encouraging. The company expects comps for the entire fiscal year to clock in between flat and a 2% decline. That suggests a dramatic turnaround during the second half of the year, after a 4.6% decline through the first half of fiscal 2017. 

All three stocks were under fire until their recent rallies. Ruby Tuesday, a fading operator that hasn't posted a year of positive comps since 2006, has seen its stock plummet more than 90% over the past 10 years. Noodles & Co. is on a roll since last month's private placement fortified its liquidity, but it's trading for less than a third of its $18 IPO price from 2013. And Sonic is holding up relatively better than Ruby Tuesday and Noodles & Co., but its shares have still fallen 28% over the past year. 

Last week's gains were warranted, even if all three concepts are currently suffering through negative comps. A real estate-savvy investor sees value in Ruby Tuesday at present levels. Noodles & Co. will have more money to plot its turnaround. And Sonic sees improving traffic trends. All three operators have a long way to go to get back to where they used to be, but a step up is still a step up.  

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ruby Tuesday, Inc. Stock Quote
Ruby Tuesday, Inc.
RT
Sonic Corp. Stock Quote
Sonic Corp.
SONC
Noodles & Company Stock Quote
Noodles & Company
NDLS
$6.39 (5.62%) $0.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
356%
 
S&P 500 Returns
124%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.