As the restaurant industry continues to face post-pandemic era challenges, investors might want to consider selling a few restaurant stocks while they still can. These companies struggle with various issues such as declining sales, increasing costs and intense competition. Unfortunately, these have negatively impacted their financial performance and stock prices.
Investors should evaluate these restaurant stocks’ long-term prospects by considering their adaptability to changing consumer preferences. Also, financial health and competitive position are two more factors to examine. If a stock consistently underperforms its peers and broader market without clear signs of a turnaround strategy, investors may want to cut losses and reallocate capital.
With some great stocks to buy in this industry, it makes little sense for investors to continue to invest in struggling companies. Some of the best names in the industry also pay strong dividends and have stable stock prices.
So, let’s explore three restaurant stocks to sell this month that may prove a pain to retain.
Chipotle Mexican Grill (CMG)
Chipotle (NYSE:CMG) has been under pressure due to rising food costs and supply chain disruptions. True, the company has a strong brand and customer loyalty. But, its high valuation and the impact of inflation on its operating costs pose significant risks.
The prices for essential ingredients like avocados, beef and dairy have surged, increasing the company’s overall operating expenses. For instance, the price of avocados has been particularly volatile, affecting the cost of one of Chipotle’s staple ingredients.
Furthermore, analysts have expressed concerns about whether the company can sustain its premium valuation given the external pressures of rising costs and supply chain issues. The high valuation makes Chipotle vulnerable to market corrections.
CMG may not offer investors enough upside potential in order to stay invested. And the persistent inflation risks means margins may continue to feel pressure.
Domino’s Pizza (DPZ)
Domino’s Pizza (NYSE:DPZ) has seen its growth slowing down after a period of rapid expansion. The company’s focus on delivery and carryout kept it afloat during the pandemic. However, competition is increasing.
In Q1 of 2024, the company reported a 5.9% increase in total revenues, reaching $1.08 billion. Also, it saw a 20.1% rise in net income to $125.8 million. Despite these gains, the growth rate has decelerated compared to previous years.
The competitive arena in the food delivery and quick-service restaurant sectors has intensified. Domino’s, which relies heavily on delivery and carryout services, faces stiff competition from both traditional pizza chains and new market entrants like third-party delivery services such as Uber Eats and DoorDash.
Additionally, maintaining high growth rates will be challenging amid increasing operational costs and competitive pressures. It seems that DPZ will struggle to remain as the cheap go-to option as it fights to maintain its identity in the gig economy and an environment of rapidly rising input costs.
Yum! Brands (YUM)
The parent company Yum! Brands (NYSE:YUM) of KFC, Pizza Hut and Taco Bell has been facing declining sales.
In Q1 of 2024, the company’s total revenues decreased by 3% year-over-year (YOY) to $1.59 billion. Also, same-store sales declined by 3%, reflecting the challenges the company faces with growth momentum.
Additionally, YUM focuses on digital sales and potential acquisitions to drive growth. The company’s digital sales are projected to reach approximately $30 billion by the end of the year, up from $12 billion four years prior.
Yet, analysts have a mixed view of Yum! Brands’ future prospects. Some analysts highlight the company’s potential for a 17% upside due to its strategic initiatives and robust growth outlook. But, others maintain a neutral stance, and the company has what I believe to be overly optimistic EPS and revenue forecasts.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.