Investors have acquired a taste for fast-casual restaurant and food stocks, with Chipotle Mexican Grill (NYSE:CMG) one of the top performers in the space. Shares of Chipotle rose nearly 28% in 2014 and are currently trading near the stock's 52-week high of $697 per share.
There's no denying that Chipotle has been a rewarding stock for investors in recent years. However, past performance is not indicative of future performance. With Chipotle stock now trading at more than 52 times earnings, investors might be looking for other places to put their money. Three Motley Fool contributors weigh in below with more attractive opportunities for investors in the fast-casual market. Check out what they had to say about Buffalo Wild Wings (NASDAQ:BWLD), Texas Roadhouse (NASDAQ:TXRH), and Panera Bread (NASDAQ:PNRA.DL).
Rich Duprey (Buffalo Wild Wings): Chicken-and-beer restaurant Buffalo Wild Wings has perfected the blending of sports, food, and what it calls "tablegating" by creating an immersive style viewing of sporting events. Putting customers right into the action has created conditions for growth that rival fast-casual leader Chipotle.
Revenues have grown at an annual 25% clip over the past 10 years, with even better performances for operating income and earnings per share. And where the Mexican food joint has some 1,700 restaurants stretched across the country, Buffalo Wild Wings sports only 1,040, meaning it still has plenty of room to grow before it catches up to Chipotle, let alone when it will reach a saturation point nationwide.
Even though key input costs like chicken are significantly higher now -- wings, for example, are 30% above the level they were just in the third quarter -- it's been able to initiate price increases that will somewhat offset those costs. Even so, higher prices seem not to have affected same-store sales, which were running 5% higher in the first four weeks of the fourth quarter. Without the weather problems we saw last winter, we should expect B-Dub's Q4 performance to be in line.
Buffalo Wild Wings is also engaging its customers through the addition of tableside technology, such as tablets, and a new app for greater customer participation in games, sports, and the restaurant itself. It now also sponsors a high-profile New Year's Day college bowl game that ought to bring with it greater exposure.
Chipotle Mexican Grill is a great play on the trend in personalized, healthful eating, but it doesn't have the same level of engagement with its customers, which is exactly what brings fans into Buffalo Wild Wings restaurants. Simply put, a burrito bowl doesn't deliver the same kind of "experience" customers get when they enter a B-Dubs. The chicken-and-beer chain still has room for a lot more growth, and double-digit gains well into the future wouldn't be a surprise.
Joe Tenebruso (Texas Roadhouse): On Feb. 17, 1993, Kent Taylor opened the first Texas Roadhouse in Clarksville, Ind. His goal was "to own not just a family restaurant and not just a steak restaurant, but a place where everyone, of all ages, could come and have a great meal and great fun for a great price." Taylor also believed in putting employees first and thought that if all his team members were happy, his guests would have an amazing experience to brag about. Judging by Texas Roadhouse's numerous customer awards, successful expansion (Roadhouse locations now check in at more than 440), and market-crushing returns for shareholders since Texas Roadhouse came public in 2004, Taylor was correct.
More important for today's investors is that strong shareholder returns still lie ahead. Continued restaurant count expansion (25 to 30 restaurant openings are planned for 2015) and positive same-store-sales growth (which increased more than 5% in the third quarter of 2014) should drive double-digit increases in revenue. I also expect operating and net margins to trend upward over time, as Texas Roadhouse leverages its costs over an expanding restaurant base, thereby fueling earnings-per-share growth at an even higher rate than revenue growth.
Impressively, Texas Roadhouse funds its store count expansion mostly through its strong operating cash flow, which has led to balance sheet strength, with $59 million in cash versus $53 million in debt. It also allows the company to return excess cash to shareholders in the form of share buybacks and rising dividend payments -- something management remains committed to -- which should further boost returns.
All told, I believe Texas Roadhouse can deliver total shareholder returns in the range of 10%-15% for the next several years. The company's all-stakeholder philosophy, cash-flow-funded growth strategy, and excellent founder-led management team make it one of my favorite restaurant stocks. And I expect CEO Taylor and his team to continue to delight both customers and shareholders for many years to come.
Tamara Walsh (Panera): Panera looks particularly appetizing heading into the new year thanks to "Panera 2.0," the company's new initiative to improve the customer experience and increase both take-out and in-store traffic. Customers will be able to place take-out orders both online and from their mobile devices using Panera's new Rapid Pick-Up option. Not to mention that in-house guests can order from their table or at fast-lane kiosks within the cafe. Panera has also been investing in technology that will enable customers to not only customize their orders but also save them for future visits.
Investors should also be excited about Panera's fast-growing consumer packaged-goods business. The company currently sells Panera branded soups, salad dressings, and roasted coffee at hundreds of grocery stores throughout the United States. That initiative should boost revenue for the bakery-cafe, as Panera continues to grow its distribution network in the year ahead. Moreover, the fast-casual space is expected to grow at a faster clip than the broader restaurant category in the years to come, according to research from Morningstar.
Panera's stock currently trades around $174 a pop, in the middle of its 52-week range. In addition, unlike Chipotle, shares of Panera are trading at just 25 times earnings, which is in line with the industry average. These facts and the other catalysts I've mentioned are the reason Panera Bread is one of my favorite restaurant stocks heading into the new year.
Joe Tenebruso has no position in any stocks mentioned. Rich Duprey has no position in any stocks mentioned. Tamara Rutter owns shares of Panera Bread. The Motley Fool recommends Buffalo Wild Wings, Chipotle Mexican Grill, Panera Bread, and Texas Roadhouse. The Motley Fool owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, and Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.