Please ensure Javascript is enabled for purposes of website accessibility

Why Restaurant Stocks Were Volatile Today

By Lou Whiteman - Mar 23, 2020 at 4:00PM

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

Shares moved up and down on the outlook for a stimulus package.

What happened

Investors in restaurant stocks endured a choppy session on Monday, as the markets rose and fell with headlines on whether a stimulus package was coming out of Washington, as well as talk of what the competitive landscape might look like when the COVID-19 pandemic is finally behind us.

Among major movers, BJ's Restaurants (BJRI -4.50%) and Dave & Buster's Entertainment (PLAY -2.53%) each opened with a more than 20% gain before retreating somewhat. McDonald's (MCD 1.64%), meanwhile, swung between being up 3% and down 6% during the trading day.

So what

Restaurants have been hard hit by the pandemic, with the federal government urging citizens to practice social distancing and some local jurisdictions imposing curfews and ordering nonessential businesses to close. Given that restaurants have razor-thin margins even in the best of times, that is a formula for disaster for the industry.

A restaurant open for business sign.

Image source: Getty Images.

In an interview over the weekend, Grubhub CEO Matt Maloney predicted that upward of 30% of restaurants could close permanently, saying there isn't enough carryout demand to keep everyone profitable.

While the companies would never admit it, that sort of a projection would help these larger restaurant concepts in the long run because once the pandemic is over, they would face less competition.

The restaurant stocks were fluctuating in midday trading as it seemed a much-hoped-for economic stimulus package, which could include some relief for the hospitality industry, was getting blocked in the Senate. Even without direct aid for restaurants, some sort of economic stimulus could get consumers spending again, helping restaurants.

PLAY Chart

Restaurant data by YCharts.

McDonald's was weaker than either BJ's or Dave & Buster's, but its shares have only fallen 35% in the last month, compared with BJ's 75% fall and Dave & Buster's 75%-plus decline. McDonald's price target was lowered to $171 from $199 at Deutsche Bank, in part following the chain's decision to temporarily shut down locations in the United Kingdom and Ireland.

Now what

The pandemic is a worst-case scenario for restaurants, with populations around the globe simultaneously sheltering in place instead of being out on the town. It is going to create at least a quarter's worth, if not more, of poor results. But all three of these restaurant companies have the wherewithal to survive the downturn and wait out an economic stimulus plan.

Investors on Monday seem to be reading the drops of the last month as potential buying opportunities. It is OK to nibble here, just be prepared for a long wait before you get a full payoff on that investment.

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

McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$246.80 (1.64%) $3.97
BJ's Restaurants, Inc. Stock Quote
BJ's Restaurants, Inc.
BJRI
$22.27 (-4.50%) $-1.05
Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
PLAY
$32.77 (-2.53%) $0.85

*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
319%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

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.