There’s never a time when a burger doesn’t look appetizing. From beef patties to the growing number of plant-based alternatives, burgers seem to strike the right balance between comfort food and value. Luckily for investors, there are plenty of restaurant chains flipping burgers, and you don’t need a podcast to tell you where to find one.
With the economy a bit shaky right now, burger chains offer the chance to feed grumbling stomachs without breaking the bank. Which could be tempting investments right now? Let’s take a closer look Shake Shack (SHAK -6.09%), McDonald’s (MCD -0.92%)and Beyond meat (PARND -5.97%).
The “best burger” trend has pushed a handful of chains further into expansion, but Shake Shack is a star in this niche. There are now 395 Shake Shack locations across the planet, made up of 230 domestic company-owned locations and 165 largely international licensed units.
Revenue grew 23% in its latest quarter, fueled by expansion (we were at 339 Shake Shacks a year ago) and a 10% increase in comps. It broke even on an adjusted basis, but it was actually better than the small deficit that analysts were expecting. Shake Shack beat Wall Street’s quarterly profit targets for more than a year.
The news is not all rosy. Shake Shack noted that growth slowed in June as inflationary pressures weighed on consumer spending habits. July did not improve and forecasts are for year-over-year sales growth to slow to between 14% and 17% for the current quarter. The comforting goodness of a juicy burger and cream shake is no match for a recession. However, Shake Shack is still trying to grow in this difficult climate. He plans to open 35-40 company-operated restaurants and another 25-30 licensed restaurants. It also removes a page from the Chipotlanes playbook, adding drive-thru lanes in new locations where possible. With the stock down nearly two-thirds from its peak early last year, the edge is there to be taken if it is able to weather the storm.
We can’t leave behind the best burger chain in the world. He also posted a 10% increase in comps for his most recent quarter, but Mickey D’s took a different route to get there. National same-store sales rose just under 4% for the three months ending June, but that was on top of a 26% increase a year earlier. The real growth came from overseas, with overseas company-owned locations and international franchise stores growing 13% and 16%, respectively.
Revenues have declined in six of the past eight years, but that doesn’t mean the Golden Arches are losing relevance. McDonald’s divested some of its company-owned units to proven franchisees. It weighs on revenue growth, but it does wonders for margins. McDonald’s earnings per share over the past eight years have increased by 80%.
McDonald’s also rewards investors with quarterly income in the form of dividend checks. The 2.2% return may not seem like much in this climate of rising rates on savings accounts, but the payout has roughly doubled over the past decade. The chain has actually increased its payouts for 46 consecutive years, and that timeline has covered a lot of the economic funks. If you need more proof of resilience, keep in mind that while many fast food stocks are out of favor, McDonald’s is just 7% below its all-time highs.
Burgers aren’t just the domain of carnivores anymore. Plant-based proteins have evolved to the point where the texture and even traces of the flavor of beef burgers can be achieved without having cow, man. Beyond Meat isn’t fast food stock like Shake Shack or McDonald’s, but it’s a staple in many popular chains. Beyond Meat competes with Impossible for spirit share, but both have pretty strong representation. Chains serving Beyond Burger products include Carl’s Jr., TGI Fridays, and BurgerFi.
Despite the Beyond brand’s strong brand awareness, its stock was a big disappointment. Shares have fallen 93% — yes, 93% — since peaking shortly after the 2019 IPO.
Net sales decreased by 2% in the last quarter. It’s no surprise to see Beyond Meat languish. It saw revenue drop 1% and climb 1%, respectively, in its two previous quarterly updates. Many food companies are dealing with rising prices, but Beyond Meat has had to offload its excess inventory through discounted clearance channels, and it has also had to institute price cuts in Europe. It actually saw a 15% increase in total books sold for the period. The discount should prove temporary, but the red ink of the red meat alternative will take longer to crack. Analysts see Beyond Meat losing money through 2025. It’s still an iconic brand at an all-time low price.
Rick Munarriz has no position in the stocks mentioned. The Motley Fool holds positions and endorses Beyond Meat, Inc. The Motley Fool has a Disclosure Policy.