In today's fast-paced world, eating out several times a week is common for working adults. Late hours and too many activities have created a surge in demand for casual dining in places that serve nourishment several notches above fast food but that still fits within the budget.

While it's natural to assume that a packed restaurant on a Friday night means the company is a profitable investment, don't be fooled.

Riding the wave 
Chain restaurants are riding a decades-long shift to away-from-home meals. They're also a momentum business, meaning when they're hot they make a ton of money. But barriers to entry in this business are low, and when customers inevitably move on to the next hot chain, it's hard to get that mojo back. 

So restaurant investors must either identify the hot new concept before everyone else, or figure out who has long-term staying power. Below are six major players in the casual-dining, chain restaurant business. Which ones are worthy of a place in your portfolio? 

Annual EPS
Growth %
Past 5 Years

Annual EPS
Growth %
Next 5 Years




Brinker International (NYSE:EAT)












Darden (NYSE:DRI)






Texas Roadhouse (NASDAQ:TXRH)












Buffalo Wild Wings (NASDAQ:BWLD)






Data from Yahoo! Finance.
*TTM = trailing 12 months.

The chart says
Our first impression from this chart is: Be careful of analyst estimates. Why an analyst would expect Brinker International or Applebee's (NASDAQ:APPB) would grow faster in the next five years than the previous five is beyond me. This also means you need to use the PEG ratios with caution. 

The second point that jumps out is these stocks generally have not done well over the past year, and restaurant investors must focus on growth potential. Packed restaurants, good food, and profitable operations are required. But even establishments with all these characteristics are not all successful. Many times companies that appear successful struggle to maintain bottom-line growth.

Bland companies need spicing up
Despite the admirable longevity of Chili's, Brinker's prime franchise reached the saturation point several years ago. Macaroni Grill has suffered from weak comps the past few years, and management is looking for a buyer for the chain. The company needs a new, hot franchise. It has plenty of cash flow to fund growth, but no investment vehicle. Expect more of the same from Brinker in the foreseeable future.

IHOP is going down a new path to generate earnings growth from an established chain -- it will combine with another established chain, Applebee's. This approach shows promise, and could become a new blueprint for casual-dining success. There could be major gains in product sourcing, distribution costs, and overhead consolidation. IHOP's record of 19 consecutive quarters of positive comp sales growth shows the management team knows how to drive new customers into established locations.  Too soon to tell whether this plan will work, but it will be fun to watch.

Darden Restaurants has kept its Olive Garden and Red Lobster concepts fresh and appealing for longer than anyone would have thought possible. But last year was an earnings washout for the company, and the Bahama Breeze and Smokey Bones concepts don't look to be the generation of the future. I was impressed with its most recent results, but I think the 27.4 PE multiple requires more than just one plate of hot earnings

Companies for investors with big appetites
I like the Texas Roadhouse story, and not only because I live in the Lone Star state. At the end of the most recent quarter the company had 272 locations -- plenty of room to grow. Although the casual steakhouse space is very competitive, the stock is priced the same as it was when it went public three years ago -- despite doubling sales and profits over the same time. A PE multiple of 24 isn't cheap, but I believe the company has potential to grow at 20%+ over the next five years.

Panera Bread is an interesting case of solid top-line growth -- without the profits to match. The company recently disappointed investors with a bland Q3, partially the result (we are told) of shifts to less profitable menu items. The brand perfectly suits today's taste for an upscale, fast, and healthful offering, but its struggles with management costs has prevented its surging sales growth to make its way to the bottom line. With the steep share price decline this year, I'm tempted to bite off a slice of this bread -- although some think the company is crusty and stale.

The tastiest offering among this group appears to be Buffalo Wild Wings. I love the name, the modestly priced food, and the atmosphere of these wing-and-burger joints. More important, the stock price looks like a gift after being tenderized last week on higher chicken costs.

Note that this stock has been pulverized in the past, but it has a history of roaring back. B-dub's strong management team has grown earnings at 43% per year for the past five years, and is expected to serve up 24% on average for the next five years.

All this and 14 signature sauces ... what more could anyone want?

Buffalo Wild Wings is a Hidden Gems recommendation, and Panera has been picked by the Pay Dirt service. B-dub is beating the market by 80% since we first recommended it. Find out what our team has their eye on now with a free, 30 day trial.

Motley Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He doesn't own shares of any of the companies mentioned in this article. He welcomes comments and feedback. The Fool has a finger-lickin' disclosure policy.