Investing in Franchise Stocks

The franchise business model has long been popular, and franchising is an easy way to develop a business. Once you have a successful concept, you can outsource the work of opening new stores to franchisees, who replicate that concept as the franchise owners.

This creates a win-win situation for both parties: The franchisees get the benefits of a well-known brand, a blueprint for operating a business, and ongoing support. The franchisors get to collect franchise fees, including royalties on sales and money to fund advertising.

If you're not interested in running your own small business, one of the best ways to get exposure to this industry is by investing in franchise stocks or the stocks of publicly traded franchise companies. Franchising is a popular business model among fast-food restaurants and is also common for hotels, gyms, travel planning services, and commercial cleaners. At scale, franchise stocks tend to generate high profit margins because franchisors have relatively low fixed costs and collect recurring revenue from royalties.

Let's take a look at some of the best available publicly traded franchise stocks today.

1. Planet Fitness

Planet Fitness was a model of excellence before the COVID-19 pandemic, as the company steadily expanded across the country. Its low-cost model, with monthly membership prices starting at $15, helped to ensure consistent demand.

Since its 2015 initial public offering (IPO), the stock price is up around 600%. The stock steadily gained in its early years but has traded mostly sideways in the years after the pandemic. Its valuation may have gotten ahead of the business, and the work-from-home transition may also pose a challenge for the company.

The company's number of locations recently surpassed 2,700, and it expects to expand to 5,000 gyms or more, giving Planet Fitness plenty of room to grow. With a high-margin business and a budget-priced product, the gym stock looks like a good long-term bet.

2. Marriott International

Marriott became the world's largest hotel chain in 2015 with its acquisition of Starwood Hotels & Resorts, making it also one of the biggest franchisors in the world.

Hotel chains were hit hard by the pandemic, but Marriott's stock has rebounded well, thanks to the post-pandemic travel boom. Additionally, one of the strengths of the franchise model is that it insulates the franchisor from economic downturns or black swan events like the pandemic by removing many of the fixed costs that operators are obliged to pay.

Marriott delivered strong results in 2024, with revenue up 6% to $25.1 billion and a 3% drop in operating income to $3.86 billion. If you're looking for stocks in the travel industry, hotel franchisors like Marriott can be a safer option than alternatives like airlines and cruise lines, which have higher fixed costs.

3. Snap-on Tools

Snap-on Tools calls itself the world's No. 1 tool brand. Franchisees sell its products from mobile stores, which are essentially trucks branded as Snap-on Tools stores.

Snap-on has delivered steady growth over its history. The need for tools won't go away and is closely tied to economic growth. Its net sales fell 0.5% in 2024 to $4.71 billion, but the company posted an operating profit margin of 23%, which is a reflection of the strength of the franchise model and does not include franchisee financing, a lucrative business for Snap-On.

The company's brand and its wide range of tools and equipment have made the stock a historical outperformer. Its business model should continue to deliver solid results since there is always a market for its products.

4. RE/MAX Holdings

The housing market has struggled since the pandemic ended, which dragged down shares of RE/MAX and almost every other real estate stock. However, that sets up an opportunity when mortgage rates come down, though that's taking longer than some had hoped.

The company is the world leader in residential real estate sales by transactions and is well-positioned to capitalize on the recovery. Today, the brand has more than 145,000 agents in almost 9,000 offices across 110 countries and territories.

After a decline during the 2007-10 housing bust, the business grew steadily over the next decade, though the post-pandemic housing slump squeezed the business.

The company was once a rewarding dividend stock, but it suspended its dividend in November 2023 in response to the challenging housing market and a litigation settlement.

1. McDonald's

The fast-food giant has more than 43,000 locations around the world, with the vast majority -- more than 90% -- owned by franchisees. A few years ago, McDonald's converted many of the company's restaurants in China and other international markets into franchises, giving the company even more of an "asset-light" model that freed it of the fixed costs of running restaurants. McDonald's also owns much of the real estate on which its franchise restaurants are built, allowing the company to collect rent from franchisees.

The fast-food giant has seen challenges from weak consumer discretionary spending, but it's been a steady winner throughout its history, and that's unlikely to change given its name recognition, prime locations, and marketing muscle.

2. Wingstop

Wingstop is much smaller than McDonald's, but the chicken wing seller offers a low-cost initial franchise fee and a simple menu, making its franchises easy to operate. It's also been a big winner in recent years since its small-footprint model lends itself well to takeout and delivery, and it's known for inexpensive locations. Domestic same-store sales surged 19.9% in 2024, continuing a blistering run for the company.

Chicken at fast-food restaurants has also proven popular, as evidenced by the success of peers such as Chick-fil-A and Popeyes, the latter owned by Restaurant Brands International (QSR -0.04%). Wingstop now has more than 2,500 locations around the world, giving it plenty of room to grow.

3. Domino's

You might be surprised to learn that Domino's has been one of the best-performing stocks on the market since the 2008-09 financial crisis, with its share price up more than 7,000% from the bottom. A successful turnaround plan that included reformulating the company's pizza recipe has helped to drive the company's growth during the decade, and its strength in delivery has made it popular during the pandemic.

Domino's also has an appealing concept for franchisees as it offers a low-cost initial investment and a simple menu that combines with the global popularity of pizza delivery to make Domino's appealing to many entrepreneurs.

Related investing topics