Restaurants have seen an increase in performance over the past few months, and recently released results for April should leave a good taste in investors' mouths.
The National Restaurant Association's Restaurant Performance Index (RPI) came in at 100.9 for April. That's a sure sign that the key indicators in the industry are looking positive, since any measure over 100 indicates expansion. April's performance was down slightly from March's 101.0 rating, but it was still the fifth straight month that the RPI showed expansion.
The association also noted that same-store sales trends and traffic were net positive in April. Some 48% of operators made capital investments in the past three months, the highest percentage since 2008.
The industry uptrend is reflected in the good performances at perennial favorites McDonald’s
Q1 Same-Store Sales
Red Robin Gourmet Burgers
Source: Capital IQ, a division of Standard & Poor’s.
Faves such as McD's, Panera, and Chipotle have thrived throughout the recession, so continued strength in the sector will probably benefit more marginal players such as Red Robin and Wendy's/Arby's Group, both of which have had spotty performances over the past few years. Both are in the midst of turnarounds, and Wendy's is looking to sell its underperforming Arby's unit, a move that could realize good value for the company.
Red Robin also notched a quarter that investors loved, and they sent the stock up strongly. The restaurant chain is a selection in my Rising Stars portfolio and has already seen gains of around 70% since I purchased.
Will the restaurant sector continue to thrive in the near future? With several economic indicators showing declining growth in May, we may yet see a decline. And that might bode better for stocks of the players able to thrive in difficult markets, such as McDonald's. Stay tuned.
Jim Royal, Ph.D., owns shares of McDonald's and Red Robin. The Motley Fool owns shares of Chipotle and Red Robin. Motley Fool newsletter serviceshave recommended buying shares of Chipotle, Panera, and McDonald's and creating a write covered strangle position in Red Robin. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.