Restaurants increase convenience and give many people a place to unwind. But the side dish is that they’re quite difficult to operate because high inventory and labor costs generally lead to thin margins at the store level. This leaves little room for error if demand dries up, and it seems like the market has some reservations as the industry has tumbled by 14% over the past six months. This performance is a noticeable divergence from the S&P 500’s 13.4% return.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Keeping that in mind, here are two resilient restaurant stocks pinned to our Google Maps and one we’re steering clear of.
One Restaurant Stock to Sell:
Sweetgreen (SG)
Market Cap: $816.8 million
Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE:SG) is a casual quick service chain known for its healthy salads and bowls.
Why Should You Dump SG?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Free cash flow margin dropped by 10.8 percentage points over the last year, implying the company became more capital intensive as competition picked up
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Sweetgreen’s stock price of $6.84 implies a valuation ratio of 1x forward price-to-sales. If you’re considering SG for your portfolio, see our FREE research report to learn more.
Two Restaurant Stocks to Watch:
McDonald's (MCD)
Market Cap: $221.3 billion
With nicknames spanning Mickey D's in the U.S. to Makku in Japan, McDonald’s (NYSE:MCD) is a fast-food behemoth known for its convenience and broken ice cream machines.
Why Should MCD Be on Your Watchlist?
- Rapidly increasing restaurant base reflects a desire to sell in new markets and scale quickly
- Highly-profitable franchise model results in strong unit economics and a best-in-class gross margin of 57%
- Robust free cash flow margin of 26.7% gives it many options for capital deployment, and its rising cash conversion increases its margin of safety
At $310.08 per share, McDonald's trades at 23.9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
Yum! Brands (YUM)
Market Cap: $39.72 billion
Spun off as an independent company from PepsiCo, Yum! Brands (NYSE:YUM) is a multinational corporation that owns KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill.
Why Is YUM on Our Radar?
- Fast expansion of new restaurants indicates an aggressive approach to attacking untapped market opportunities
- Excellent operating margin of 31.7% highlights the efficiency of its business model
- Strong free cash flow margin of 19.2% enables it to reinvest or return capital consistently
Yum! Brands is trading at $143.38 per share, or 22.2x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
High-Quality Stocks for All Market Conditions
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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