3 Restaurant Stocks Showing Growth Potential Amid Industry Turbulence

The Zacks Retail – Restaurants industry continues to navigate a challenging macroeconomic environment, high costs and dismal traffic. Restaurants are finding it increasingly difficult to maintain margins as labor expenses stay high and food costs continue to fluctuate unpredictably. However, the industry is benefiting from partnerships with delivery channels and digital platforms. Stocks like Chipotle Mexican Grill, Inc. CMG, Brinker International, Inc. EAT and BJ's Restaurants, Inc. BJRI are well-poised to benefit from the factors mentioned above.

Industry Description

The Zacks Retail-Restaurants industry comprises several owners and operators of casual, upscale casual, fine dining, full-service and fast-casual restaurants. Some industry participants operate as roasters, marketers and retailers of specialty coffee. Some companies develop, operate and franchise quick-service restaurants worldwide. A few restaurant operators offer cooked-to-order dishes, including noodles and pasta, soups, salads and appetizers. Some industry players develop, own, operate, manage and license restaurants and lounges worldwide. A few companies also run technology-enabled Japanese restaurants in the United States and provide Japanese cuisine through a revolving sushi service model.

5 Trends Shaping the Future of the Restaurant Industry

Traffic Is Slipping as Consumers Pull Back on Discretionary Spend: U.S. restaurant visits are under pressure as inflation-weary consumers prioritize essentials over dining out. Lower and middle-income households are cutting back the most, leading to softer foot traffic across quick-service and casual dining formats. Even value-oriented chains are seeing fewer visits, signaling that demand pressure is no longer isolated to higher-priced concepts.

Labor and Food Costs Continue to Compress Margins: Restaurants are struggling to protect profitability as wages remain elevated and food input costs stay volatile. While price increases helped offset inflation earlier, the ability to push further pricing has weakened. This is forcing operators to absorb higher costs, resulting in tighter margins, reduced promotional flexibility and slower earnings growth across the industry.

Promotions Are Rising, but Discounting Is Eroding Profit Quality: To defend traffic, many restaurant chains are leaning more heavily on promotions, limited-time offers and value bundles. While these tactics may stabilize short-term sales, they often dilute average checks and pressure restaurant-level margins. The growing reliance on discounting highlights weakening pricing power and raises concerns about the sustainability of earnings.

Digitalization to Drive Growth: Restaurant operators’ focus on digital innovation, sales-building initiatives and cost-saving efforts has been a catalyst. With the growing influence of the Internet, digital innovation is the need of the hour. Restaurant operators constantly partner with delivery channels and digital platforms to drive incremental sales. Partnerships with delivery channels like DoorDash, Grubhub, Postmates and Uber Eats, and the rollout of self-service kiosks and loyalty programs continue to drive growth.

Off-Premise Sales Act as Key Catalyst: The industry is gaining from the increase in off-premise sales, which primarily include delivery, takeout, drive-thru, catering, meal kits and off-site options, such as kiosks and food trucks. Most restaurant operators have initiated the testing of ghost or virtual kitchens. The idea of providing off-premise offerings and a connected curbside service has been garnering positive customer feedback.

Zacks Industry Rank Indicates Dull Prospects

The Zacks Restaurant industry is grouped within the broader Retail-Wholesale sector. It carries a Zacks Industry Rank #210. This places it in the bottom 14% of more than 244 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

The industry’s position in the bottom 50% of the Zacks-ranked industries results from a negative earnings outlook for the constituent companies in aggregate. Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.

Industry Underperforms the S&P 500 & the Sector

The Zacks Retail-Restaurants industry has underperformed the Zacks S&P 500 composite and its sector over the past year.

Over this period, the industry has declined 3.2% against the Zacks S&P 500 composite’s rise of 13.6%. The sector has risen 4.5%.

1-Year Price Performance

Restaurant Industry's Valuation

Based on the forward 12-month P/E, a commonly used multiple for valuing restaurant stocks, the industry is currently trading at 24.46X compared with the S&P 500’s 22.81X. It is below the sector’s forward 12-month P/E ratio of 25.05X.

Over the past five years, the industry traded as high as 30.54X and as low as 22.08X, the median being 25.08X.

P/E (F12M)

3 Key Restaurant to Watch

Brinker: The company is benefiting from increased menu pricing and effective marketing strategies. For the coming year, Brinker will look for more ways to offer convenience, value and a great guest experience by doubling its pipeline of new restaurant openings and expanding the portfolio of brands. Brinker is also shaping a long-term expansion plan, aiming to complete its remodel and new unit strategy by fiscal 2027. 

Shares of this Zacks Rank #2 (Buy) company have gained 4.1% in the past year. EAT’s fiscal 2026 sales and earnings are anticipated to rise 6.5% and 15.1%, respectively, year over year. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: EAT

BJ's Restaurants: The company is benefiting from efforts focused on growing traffic, enhancing operational efficiency and improving restaurant-level profitability. Ongoing remodeling efforts and menu innovations continue to strengthen brand positioning, while management is advancing work on a new prototype design that better reflects the brand’s identity. 

Shares of this Zacks Rank #2 company have gained 24.7% in the past year. BJRI’s 2026 sales and earnings are anticipated to rise 2.4% and 3.3%, respectively, year over year.

Price and Consensus: BJRI

Chipotle: The company is reinforcing long-term growth by combining clean, high-quality ingredients with operational and digital innovation. High-efficiency kitchen equipment, retraining and technology investments are improving throughput, consistency and labor productivity. Expanding loyalty and digital programs are boosting engagement and transaction frequency.

Shares of this Zacks Rank #3 (Hold) company have declined 29.3% in the past year. CMG’s 2026 sales and earnings are anticipated to rise 9.4% and 3.4%, respectively, year over year.

Price and Consensus: CMG

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Chipotle Mexican Grill, Inc. (CMG): Free Stock Analysis Report
 
BJ's Restaurants, Inc. (BJRI): Free Stock Analysis Report
 
Brinker International, Inc. (EAT): Free Stock Analysis Report

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

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