Rave Restaurant Gains 14% in 3 Months: How to Play the Stock?

Rave Restaurant Group, Inc. RAVE investors have been experiencing some short-term gains from the stock lately, despite its bumpy ride over recent months. Shares of the Dallas, TX-based holding company have gained 14% in the past three months compared with the industry’s 3.7% rise. In the same time frame, the stock also outperformed the sector and the S&P 500’s 5.8% and 4.2% gain, respectively.

A key recent development for RAVE was the release of its first-quarter fiscal 2026 results in November 2025. The company reported improved profitability for the quarter, driven by stronger performance at the Pizza Inn brand and disciplined expense management. Higher franchise activity and supplier incentive revenues supported operating income growth, offsetting continued softness at Pie Five. Credit costs remained minimal, helping preserve earnings quality.

Management highlighted ongoing focus on cash generation and balance sheet strength, supported by steady operating cash flow and liquidity. Value-oriented promotions, selective unit development and tight cost controls are expected to support continued profitability and stable earnings momentum in the coming quarters.

RAVE’s Three Months Price Comparison

Over the past three months, the stock outperformed its peers like Flanigan's Enterprises, Inc. BDL and Nathan's Famous, Inc. NATH. Flanigan's and Nathan's Famous’ shares have gained 0.7% and lost 15.9%, respectively, in the same time frame.

Despite several challenges within the restaurant industry, including rising food and labor costs, the favorable share price movement indicates that the company might be able to maintain the positive market momentum at present.

Rave Restaurant operates and franchises pizza restaurants through two main brands: Pizza Inn and Pie Five Pizza Company (Pie Five). Its business model focuses on franchising buffet-style, delivery/carry-out, express and ghost kitchen restaurants under the Pizza Inn brand, and fast-casual pizza restaurants and ghost kitchens under the Pie Five brand. It also licenses Pizza Inn Express kiosks (PIE Units) for non-traditional venues. RAVE supports its franchise network via third-party agreements for the distribution of food, equipment and supplies to domestic and international locations.

Rave Restaurant’s Strong Fundamentals Weigh In

RAVE’s stock is being supported by the continued strengthening of its core Pizza Inn franchise system. Management has sharpened its focus on value-driven promotions, which have helped improve customer traffic and comparable sales while preserving franchisee-level economics. This operational momentum is reinforced by selective unit development, with groundwork laid for incremental domestic growth after several years of system rationalization.

Another key driver is the company’s capital-light franchise model, which continues to generate stable cash flows with limited balance sheet risk. Rave Restaurant benefits from recurring royalty streams and supplier incentive revenues tied to system-wide sales, while disciplined expense management has improved operating leverage. This structure allows the company to remain profitable even amid uneven brand performance.

Rave Restaurant’s strong liquidity position adds a layer of downside protection and strategic flexibility. Management has emphasized balance sheet strength, supported by consistent operating cash generation and a sizable investment portfolio. This financial cushion enables continued reinvestment in marketing initiatives, franchise support and opportunistic capital allocation, reinforcing confidence in the company’s longer-term outlook.

Challenges Ahead for RAVE

Despite its strengths, a few headwinds continue to weigh on the stock. The Pie Five brand remains a drag on overall performance, as store closures and weaker comparable sales reflect ongoing challenges in stabilizing the concept amid intense competition in the fast-casual pizza segment. Additionally, Rave Restaurant’s limited scale and concentrated geographic footprint leave it more exposed to regional demand shifts and competitive pricing pressures, which can constrain growth visibility and temper investor sentiment despite solid execution at Pizza Inn.

Rave Restaurant Stock’s Valuation

RAVE’s trailing 12-month EV/Sales of 2.8X is lower than the industry’s average of 4.3X, but is higher than its five-year median of 1.9X.

Flanigan's and Nathan’s Famous’ trailing 12-month EV/Sales currently stand at 0.3X and 2.6X, respectively.

Our Final Take on RAVE

Rave Restaurant is supported by steady execution at its Pizza Inn brand, a capital-light franchise model and a strong liquidity position that provides financial flexibility. Value-focused promotions, disciplined cost control and selective unit development have helped sustain profitability and cash generation, even as management continues to rationalize the broader brand portfolio. These factors provide a solid operational foundation and improve RAVE’s ability to navigate competitive pressures in the restaurant industry.

From a valuation perspective, a more balanced stance is warranted. While RAVE’s shares trade below the broader industry on an EV/Sales basis, they sit above the company’s own longer-term historical median, suggesting some recent improvement is already reflected in the stock. For existing investors, continued execution and cash generation support staying invested, while new investors may prefer to await a more attractive entry point given ongoing challenges at Pie Five and limited scope for near-term multiple expansion.

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This article originally published on Zacks Investment Research (zacks.com).

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