Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Restaurant Stocks Fell Out of the Sky Today

By Travis Hoium - Mar 18, 2020 at 5:15PM

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

Takeout may not be enough to save the restaurant industry.

What happened 

Restaurant stocks are taking it on the chin today as cities across the U.S. shut down restaurants and begin to close down to control the coronavirus pandemic. Shares of Dave & Buster's Entertainment Inc (PLAY 9.90%), Chipotle Mexican Grill, Inc. (CMG 3.06%), Texas Roadhouse Inc (TXRH 4.54%), BJ's Restaurants, Inc. (BJRI 6.40%), and Darling Ingredients (DAR 0.41%) all dropped more than 10% today, and some fell a lot more. 

Restaurant Change at 3:20 p.m EDT Max Change
Dave & Buster's Entertainment (17.6%) (29.4%)
Chipotle Mexican Grill (13.5%) (20.9%)
Texas Roadhouse (14.7%) (28.4%)
BJ's Restaurants (38.7%) (43.2%)
Darling Ingredients (26.7%) (41.6%)

Source: Google Finance. 

So what

One of the first responses cities have had to the coronavirus pandemic is to shut down gathering places for 50 people or more. The most commonly visited of these are restaurants, which can have hundreds of people come through in a day. 

Person getting a take-out bag.

Image source: Getty Images.

Initial measures have been to shut restaurants down a couple of weeks and limit business to takeout or delivery. The downtime will be devastating for most companies in the industry and is already resulting in the layoff of hundreds of thousands of employees nationwide. 

What we don't know is when the business will return or what it will look like when it does. Consumers may keep their distance for months, and there will certainly be new scrutiny on how safe it will be to eat at restaurants while coronavirus is out there. 

Now what

The restaurants who survive may actually be in a great position long-term if rivals don't make it through this downturn. And some have options that will soften the landing. 

One that I think will be better a few years from now is Chipotle Mexican Grill, which can keep most restaurants open and serve only take-out or delivery services. Instead of just being a restaurant stock, it could become something of a consumer staple in these hard times. This may be an opportunity to introduce customers to those services and provide some much-needed comfort food at the same time. 

As much as there might be some bright spots, there's a lot of uncertainty for restaurants, and some will certainly go out of business because of this crisis. So, investors will want to consider how strong balance sheets are and how many options companies have to adapt the business long-term. This crisis may last for a few months, and companies who can't absorb that impact won't be a discount at any price. 

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

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,329.02 (3.06%) $39.50
BJ's Restaurants, Inc. Stock Quote
BJ's Restaurants, Inc.
BJRI
$24.93 (6.40%) $1.50
Darling Ingredients Inc. Stock Quote
Darling Ingredients Inc.
DAR
$61.65 (0.41%) $0.25
Texas Roadhouse, Inc. Stock Quote
Texas Roadhouse, Inc.
TXRH
$76.95 (4.54%) $3.34
Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
PLAY
$35.73 (9.90%) $3.22

*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 analyst team.

Stock Advisor Returns
321%
 
S&P 500 Returns
111%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/24/2022.

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.