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5 Restaurant Stocks Surging on Today's News

By Jason Hall – Apr 6, 2020 at 4:21PM

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Signs that the COVID-19 outbreak is plateauing around the world have investors feeling optimistic.

What happened?

Stocks surged on Monday, following this weekend's news that some of the hardest-hit countries are starting to see declines in the number of newly diagnosed cases of COVID-19, and are entering a plateau that will hopefully be followed by a decline. 

This had investors flooding into some of the hardest-hit stocks, including some of the biggest restaurant chains that count on eat-in customers for most of their business. Here are five that saw their stocks rise by double-digit percentages: 

Company
Price change on April 6, 2020
Bloomin' Brands (BLMN -1.61%) 18.7%
Brinker International (EAT -2.54%) 15.7%
Chipotle Mexican Grill (CMG -2.63%) 12.9%
Dave & Buster's Entertainment (PLAY -1.40%) 12.6%
Shake Shack (SHAK -3.52%) 14.3%

As of market close at 4 p.m. EDT. Source: Yahoo! Finance.

So what

Stocks in the restaurant sector have been among those punished the most in the pandemic-driven selloff. That's particularly the case for eat-in-focused chains like Dave & Busters and Bloomin' Brands' Outback Steakhouse. 

Even companies that do a significant takeout business, including Chipotle, have seen their shares fall sharply since late February. 

Empty booths in a restaurant.

Despite Wall Street's optimism on Monday, it's going to be many months before restaurants are filled with customers again. Image source: Getty Images.

On Monday, investors were buying on optimism that the worst could be behind us soon, at least based on what is happening in some parts of Europe, where it appears that new COVID-19 cases are starting to finally level off. 

Now what

This big, optimistic buying spree may feel good, but investors should continue to keep a muted, realistic outlook. The number of COVID-19 cases is still rising sharply in the U.S, and while the social isolation efforts that have slammed the brakes on the broader economy should lead to a plateau in COVID-19 infections soon, the death toll is likely to grow dramatically before that happens. 

Moreover, the economic data that will be released in the weeks to come will be brutal. The depth of this recession will become more apparent, and each week will bring another massive increase in unemployment claims. The bottom line is, despite the glimmers of optimism we may be seeing about the arc of the pandemic in other countries, we are still a long way from a cure, and a long way from restaurants being able to reopen on a large scale. 

Eventually, things will return to normal, and people will return to their favorite restaurant chains in large numbers. But it's going to be many months before that happens, and the economic toll of what could be the steepest plunge into recession in history will likely add additional time before any of these restaurant companies can really get back to normal.

Investing at Monday's prices will likely prove very profitable in the long run, but be ready for the recovery to take longer -- possibly much longer -- than you might expect. 

Jason Hall owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,502.76 (-2.63%) $-40.59
Bloomin' Brands Stock Quote
Bloomin' Brands
BLMN
$18.33 (-1.61%) $0.30
Brinker International, Inc. Stock Quote
Brinker International, Inc.
EAT
$24.98 (-2.54%) $0.65
Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
PLAY
$31.03 (-1.40%) $0.44
Shake Shack Inc. Stock Quote
Shake Shack Inc.
SHAK
$44.98 (-3.52%) $-1.64

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

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