There’s never a time when a burger doesn’t sound appetizing. Whether we’re talking about beefy patties or the growing number of plant-based alternatives, burgers seem to strike the right balance between comfort-food sustenance and value. Thankfully for investors, there are plenty of restaurant chains out there flipping burgers, and you don’t need a podcast to tell you where to find one.
With the economy a bit wobbly at the moment, burger chains offer the ability to feed rumbly tummies without breaking the bank. Which ones could be appetizing investments right now? Let’s take a closer look at Shake Shack (SHAK -7.43%), McDonald’s (MCD -1.25%), and Beyond Meat (BYND -4.09%).
The “better burger” trend has pushed a handful of chains deeper into expansion, but Shake Shack is a star in that niche. There are now 395 Shake Shack locations across the planet, consisting of 230 company-owned domestic locations and 165 largely international licensed units.
Revenue rose 23% in its latest quarter, fueled by expansion (we were at 339 Shake Shacks a year ago) and a 10% surge in comps. It broke even on adjusted basis, but that was actually better than the small deficit that analysts were forecasting. Shake Shack has beaten Wall Street’s quarterly profit targets for more than a year.
The news isn’t all rosy. Shake Shack noted that growth slowed in June as inflationary pressures weighed on consumer spending habits. July didn’t get any better, and guidance calls for year-over-year sales growth to slow to between 14% and 17% for the current quarter. The comfort-food goodness of a juicy burger and a custard shake are no match for a recession. However, Shake Shack is still trying to grow in this challenging climate. It expects to open 35 to 40 company-operated restaurants and another 25 to 30 licensed eateries. It’s also taking a page out of the Chipotlanes playbook, adding drive-thru lanes at new locations when feasible. With the stock down nearly two-thirds since peaking early last year, the upside is there for the taking if it’s able to weather the storm.
We can’t leave the world’s top burger chain behind. It also posted a 10% increase in comps for its latest quarter, but Mickey D’s took a different path to get there. Domestic same-store sales rose just shy of 4% for the three months ending in June, but that was stacked on top of a 26% surge a year earlier. The real growth came from overseas, as company-owned locations overseas and franchised international stores rose 13% and 16%, respectively.
Revenue has declined in six of the past eight years, but that doesn’t mean that the Golden Arches are fading in relevance. McDonald’s has been handing over some of its company-owned units to proven franchisees. It weighs on top-line growth, but it does wonders for margins. McDonald’s earnings per share over those past eight years are up a beefy 80%.
McDonald’s also rewards investors with some quarterly income in the form of dividend checks. The 2.2% yield 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 boosted its payout in 46 consecutive years, and that timeline has covered a fair share of 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 are no longer solely the turf of carnivores. Plant-based protein has evolved to the point where the texture and even traces of the flavor of beef burgers can be had without having a cow, man. Beyond Meat isn’t a fast-food stock like Shake Shack or McDonald’s, but it’s a staple in many popular chains. Beyond Meat competes with Impossible for mindshare, but both have fairly strong representation. Chains serving Beyond Burger products include Carl’s Jr., TGI Fridays, and BurgerFi.
Despite Beyond’s strong brand awareness, its stock has been a big disappointment. The shares have fallen 93% — yes, 93% — since peaking shortly after the 2019 IPO.
Net revenue declined 2% in the latest quarter. It’s not a surprise to see Beyond Meat languishing. It saw its revenue dip 1% and climb 1%, respectively, in its two previous quarterly updates. Many food companies are coping with rising prices, but Beyond Meat had to unload excess inventory through liquidation channels at a discount, and it also had to institute price reductions in Europe. It actually experienced a 15% increase in total pounds sold for the period. The discounting should prove temporary, but the red ink for the red meat alternative will take longer to crack. Analysts see Beyond Meat losing money until 2025. It’s still an iconic brand at a historically low price.
Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat, Inc. The Motley Fool has a disclosure policy.