The food and beverage industry could be an opportune sector to invest in as businesses reopen and return to full capacity around the United States. One indicator of this is that industry reports show that same-store sales among restaurants have been increasing consecutively for at least 11 weeks -- and that increase is accelerating.
If you are looking for individual restaurant stocks to add to your portfolio based on this potential, two chains with huge growth potential and reasonable valuations to consider are Kura Sushi (KRUS -3.95%) and Wendy's (WEN 0.61%).
Let's look at how they might be able to satisfy investors' palates and their wallets.
1. Kura Sushi
Kura Sushi has been killing it with its chain of upscale rotary bar sushi restaurants found in 10 states and the District of Columbia. During the fiscal 2021 third quarter (ended May 31), the company grew its revenue by a staggering 561% year over year to $18.5 million. At the same time, the company managed to turn a profit of $0.09 per share compared to a loss of $1.10 per share in Q3 2020. All 32 of its restaurants are currently operating at full capacity (although many locations only operated at 60% capacity for most of Q3).
Recovery-wise, Kura Sushi's sales are back to pre-pandemic levels. The company continues to entice many customers with its selection of nigiri, rolls, gunkan, norimaki, hand rolls, and main dishes served using a conveyor belt that distributes the food throughout the restaurant for patrons to take a la carte. In addition, it offers takeout and delivery at nearly all of its locations.
Before COVID-19 hit, Kura Sushi was growing its revenue by 28% year over year. So far in 2021, the company has opened two new locations, so there is definitely a lot of room for it to grow. Valuation-wise, Kura Sushi is trading at about 7.7 times sales. Potential investors should be aware that this is an emerging brand with enormous growth potential, especially if it decides to go the franchising route. It's still not too late to buy into the stock, even after its 361% year-over-year gain.
Wendy's has been gaining a lot of traction with the meme stock community. Traders who monitor the WallStreetBets subreddit forum seem to be particularly fond of the company's signature chicken tenders if the popularity of using the slang word "tendies" to describe gains in the stock market is any indication. Aside from that, the company has a Twitter account run by a marketing department that is known for unapologetically roasting its competitors to promote its brand, further increasing its meme value.
The whole ordeal may sound silly, but Wendy's stock has all the fundamentals to back up its investment case. In the first quarter of 2021, Wendy's grew its sales by 13.6% year over year to $460.2 million. Simultaneously, its net income increased by 186.4% to $41.4 million. In addition, the company opened a total of 38 new stores during the quarter.
A good indicator that Wendy's is not your typical meme stock and actually does well financially is that the company performs well enough to pay out dividends. Its yield amounts to 1.41% per year. What's more, the company repurchased $56 million worth of shares in Q1 and had a total authorization to buy $150 million in shares. Wendy's management said it anticipates the company will continue its momentum for the full year with sales growth of 9% and $255 million in free cash flow.
New menu items released this summer include its strawberry chicken salad and new bourbon bacon cheeseburger. Customers using the company's app can sample its food innovations without paying the full price.
Recent performance for this company strongly suggests the iconic brand is still gaining in popularity -- and it will be that way for a while. The stock trades at 2.6 times revenue and 30 times earnings -- both reasonable prices to pay for a good restaurant stock. Investors should consider taking a bite to see if Wendy's stock is to their taste.