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 7.4% over the past six months. This drop is a noticeable divergence from the S&P 500’s 5.4% return.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. On that note, here is one restaurant stock poised to generate sustainable market-beating returns and two best left ignored.
Two RestaurantStocks to Sell:
Darden (DRI)
Market Cap: $23.93 billion
Founded in 1968 as Red Lobster, Darden (NYSE: DRI) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.
Why Does DRI Worry Us?
- Annual sales growth of 6% over the last six years lagged behind its restaurant peers as its large revenue base made it difficult to generate incremental demand
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Challenging supply chain dynamics and bad unit economics are reflected in its low gross margin of 21.5%
Darden is trading at $204.49 per share, or 19x forward P/E. Dive into our free research report to see why there are better opportunities than DRI.
Sweetgreen (SG)
Market Cap: $1.74 billion
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 Does SG Fall Short?
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Cash-burning history makes us doubt the long-term viability of its business model
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Sweetgreen’s stock price of $14.71 implies a valuation ratio of 43x forward EV-to-EBITDA. To fully understand why you should be careful with SG, check out our full research report (it’s free).
One Restaurant Stock to Buy:
Chipotle (CMG)
Market Cap: $62.7 billion
Born from a desire to offer quick meals with fresh, flavorful ingredients, Chipotle (NYSE: CMG) is a fast-food chain known for its healthy, Mexican-inspired cuisine and customizable dishes.
Why Will CMG Outperform?
- Offensive push to build new restaurants and attack its untapped market opportunities is backed by its same-store sales growth
- Customers are lining up to eat at its restaurants as the company’s same-store sales growth averaged 4.8% over the past two years
- Unparalleled revenue scale of $11.58 billion gives it advantageous pricing and terms with suppliers
At $46.72 per share, Chipotle trades at 35.6x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.
Don’t let fear keep you from great opportunities and take a look at Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free.
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