Restaurants increase convenience and give many people a place to unwind. But it’s not all sunshine and rainbows as they’re notoriously hard to run thanks to perishable ingredients, labor shortages, or volatile consumer spending. Unfortunately, these factors have spelled trouble for the industry as it has shed 15.8% over the past six months. This performance is a noticeable divergence from the S&P 500’s 13.1% return.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. With that said, here is one restaurant stock poised to generate sustainable market-beating returns and two we’re steering clear of.
Two Restaurant Stocks to Sell:
CAVA (CAVA)
Market Cap: $5.48 billion
Starting from a single Washington, D.C. location, CAVA (NYSE:CAVA) operates a fast-casual restaurant chain offering customizable Mediterranean-inspired dishes.
Why Are We Wary of CAVA?
- Operating margin of 4.6% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Earnings per share have dipped by 15.6% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Negative returns on capital show that some of its growth strategies have backfired
CAVA’s stock price of $47.29 implies a valuation ratio of 83.3x forward P/E. Check out our free in-depth research report to learn more about why CAVA doesn’t pass our bar.
Kura Sushi (KRUS)
Market Cap: $551 million
Known for its conveyor belt that transports dishes to diners, Kura Sushi (NASDAQ:KRUS) is a chain of sushi restaurants serving traditional Japanese fare with a touch of modernity and technology.
Why Does KRUS Fall Short?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Kura Sushi is trading at $47.24 per share, or 25.6x forward EV-to-EBITDA. To fully understand why you should be careful with KRUS, check out our full research report (it’s free for active Edge members).
One Restaurant Stock to Buy:
Chipotle (CMG)
Market Cap: $41.74 billion
Born from a desire to offer quick meals with fresh, flavorful ingredients, Chipotle (NYSE:CMG) is a fast-food chain known for its healthy, Mexican-inspired cuisine and customizable dishes.
Why Will CMG Outperform?
- Rapid rollout of new restaurants to capitalize on market opportunities makes sense given its strong same-store sales performance
- Customers are lining up to eat at its restaurants as the company’s same-store sales growth averaged 4.2% over the past two years
- Enormous revenue base of $11.79 billion provides significant leverage in supplier negotiations
At $31.68 per share, Chipotle trades at 26.8x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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