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Did this restaurant stock get a good rating from Wall Street analysts?

We recently published a list of The 10 Best Restaurant Stocks to Buy TodayIn this article, we will look at how Texas Roadhouse, Inc. (NASDAQ:TXRH) compares to other restaurant stocks.

There is currently a lot of concern in the market about restaurant stocks, as the Russell Index, which tracks restaurants, has seen a 6% decline since March 2024. Other sectors, such as industrials and materials, to name a few, are experiencing similar problems to restaurants. This situation as a whole points to potential late-cycle market problems, characterized by the slow growth of the market in general, which is more broadly caused by consumer distress in the US.

Moreover, amidst this inflation-ridden market, restaurants in the US are racing to offer menu items in the hope of meeting customers' desire for affordable prices. Sonic, a drive-in fast-food chain based in Oklahoma, USA, is the latest member of this battle as it has introduced a $1.99 value menu that offers a variety of different dishes.

Previously, Taco Bell and Burger King had already introduced their discounted meal deals, showing the desperate attempts of various brands to attract customers under the circumstances. In addition, this is also due to the increased food and labor costs in the market, which analysts say are squeezing the margins of various restaurant brands. The consumer price index has increased by 20.8% cumulatively since February 2020, as reported Data from the Bureau of Labor StatisticsThis explains why restaurant ETFs and stocks started the third quarter at lower prices.

Still, there is hope, as the global fast food business, which goes hand in hand with the restaurant industry, is set to grow at a compound annual growth rate of 3.7% from 2023 to 2032 and is expected to reach $1 trillion by then. Moreover, hope cannot be understated, as it is reported that a staggering 37% of the US population consumes fast food. The fast food market relies most heavily on the millennial segment, as 54% of this segment visits fast food chains once or twice a week. Read our article on the 20 fast food chains with the most locations worldwide.

On the other hand, according to the National Restaurant Association, the US restaurant industry is expected to generate revenue of $1.1 trillion in 2024. This would provide jobs to 15.7 million Americans. However, given the inefficiencies in the supply chain and rising costs, restaurant operators would find it difficult to make a profit and according to market analysts, technology will play a crucial role in determining the winners and losers of the market in the coming period.

Therefore, it is important to know where to invest your money when it comes to the restaurant market, so we now guide you to our list of the 10 best restaurant stocks to buy today.

methodology

To compile our list of the 10 best restaurant stocks to buy today, we compiled a list of all the companies that have a significant presence in the restaurant industry. We then further narrowed the list based on the companies' respective upside potential and ranked the top remaining companies based on the number of their hedge fund holders in the first quarter of 2024. We did this using Insider Monkey's database, which tracks the activities of 920 hedge funds. For stocks with an equal number of hedge fund holders, we used their upside potential as the decision criteria. Also, note that all stock prices quoted are as of the time of writing unless otherwise noted.

Why do we care about the stocks hedge funds invest in? The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (more details here).

View of the kitchen staff working together to provide an exceptional dining experience.

Texas Roadhouse, Inc. (NASDAQ:TXRH)

Number of hedge fund owners: 44

Founded in 1993 in Louisville, Kentucky, Texas Roadhouse, Inc. (NASDAQ:TXRH) is a casual dining restaurant operator known for its Texas Roadhouse steakhouse.

Due to its 9% revenue growth forecast for the next three years, its share price upside potential of about 5%, and its impressive performance in the first quarter of 2024, Texas Roadhouse, Inc. (NASDAQ:TXRH) ranks well on our list of the 10 best restaurant stocks to buy today.

A 13% increase in revenue in the first quarter of 2024 compared to the first quarter of 2023 boosted the company's profitability in the quarter, helping it report earnings per share of $1.7, an increase over the first quarter of 2023's earnings per share of $1.3! This, in turn, improved the company's profitability in the quarter as its margin increased from 7.4% to 8.6%.

Due to the growth achieved year to date, the stock has attracted the attention of six more hedge funds who have shown interest in the stock starting in Q1 2024. The value of hedge fund holdings has increased and reached $1.1 billion, which also justifies the stock's place in our list. TXRH's forward P/E ratio is 29, but we believe this is justified as the company has doubled its revenue since 2020.

Total TXRH 4th place on our list of the best restaurant stocks to buy. You can visit The 10 Best Restaurant Stocks to Buy Today to see the other restaurant stocks that are on hedge funds' radar. While we recognize TXRH's potential as an investment, we believe AI stocks are more promising to deliver higher returns and do so in a shorter time frame. If you're looking for an AI stock that's more promising than TXRH but trades at less than 5x earnings, read our report on the cheapest AI stock.

READ MORE: Analyst sees new $25 billion 'opportunity' for NVIDIA and the 10 best stocks to buy in Q3 2024, according to Bank of America.

Disclosure: None. This article was originally published on Insider Monkey.