The parent company for American restaurant chain Chili’s is Brinker International(NYSE: EAT), and it made its debut on the public markets way back in 1989. Now, 35 years later, Brinker stock jumped a stunning 218% so far in 2024, climbing to an all-time high.
Brinker stock has tripled in value this year, and that places it among the top 1% of all stocks in terms of 2024 performance. Among restaurant stocks, companies such as salad-centric chain Sweetgreen(NYSE: SG), Mediterranean brand Cava Group(NYSE: CAVA), and burrito specialist Chipotle Mexican Grill(NYSE: CMG) have all dominated the headlines. But Brinker stock has outperformed them all, making it the top restaurant stock of 2024 with just a few days in the year to go.
When it comes to the other three restaurant stocks, they’re all up in 2024 as well and are outperforming the S&P 500(SNPINDEX: ^GSPC). And for each of them, it’s easy to explain why.
Sweetgreen is growing revenue at a nice pace, with a combination of new store openings and same-store sales growth. Investors have shied away from this investment because of its losses. However, management has been making changes to improve profitability. And through the first three quarters of 2024, it’s cut its operating loss by about one-third compared to the same period of 2023. This boosted investor confidence and sent the stock soaring.
For its part, Cava’s story isn’t hard to understand. Chipotle has been one of the best restaurant stock investments ever, and investors are searching for the next Chipotle-like opportunity. Cava’s key financial metrics are quite impressive and stand toe to toe with Chipotle in many regards. As it turned in impressive quarterly financial results, investors increasingly became excited about the long-term potential of Cava stock.
Finally, Chipotle went public nearly 20 years ago, but it turned in perhaps its most impressive year of financial results ever. Revenue and profits are at all-time highs, same-store sales continue to climb, and it’s opening hundreds of new locations. In short, investor optimism in Chipotle stock remains high.
When it comes to Brinker International, the explanation for why it’s up is a bit more complex.
There are multiple ways to value a stock, including metrics for the top and bottom lines. On the top line, there’s the price-to-sales (P/S) valuation metric, whereas the price-to-earnings (P/E) ratio measures the valuation from a bottom-line perspective. For Brinker, the chart shows that both the P/S and P/E ratios have risen by extraordinary amounts in 2024.
To be clear, this in isolation doesn’t tell investors whether Brinker stock is overvalued. It simply shows us that investors’ confidence in the stock increased considerably. Investors should consequently ask why that would happen.
Brinker has over 1,600 restaurant locations between its Chili’s and Maggiano’s brands, most of which are located in the U.S. and company-owned. A couple of years ago, management laid out a plan to boost revenue and profits by simplifying its menu, promoting better store cleanliness, reducing long-term debt, and more. And it seems many of its changes are working.
For starters, Brinker’s same-store sales have been on a winning streak in recent years, as the table shows.
Q1 2023
Q2 2023
Q3 2023
Q4 2023
Q1 2024
Q2 2024
Q3 2024
Q4 2024
Q1 2025
Same-store sales growth
5%
10%
11%
7%
6%
5%
3%
14%
13%
Data source: Financial figures from Brinker’s presentations. Table by author.
This growth could be attributable to several things. But one strong possibility is that customer satisfaction at Brinker’s restaurants is going up, which is good.
Moreover, Brinker’s expenses as a percentage of revenue have come down in recent years. It’s a modest improvement. But both food costs and labor expenses have dropped, boosting profitability.
In summary, Brinker is growing revenue at a double-digit pace, and its profit margin is going up. This caused investors to view the company through a more optimistic lens, which is why it has a higher valuation than it’s had in years.
From here, I wouldn’t expect an ongoing valuation boost for Brinker. Trading at 33 times earnings, one could argue that the valuation is generous already. Therefore, any potential upside for Brinker stock will need to come from growth in the business.
For this reason, I think that returns for Brinker stock will be far more modest in 2025 compared to 2024. While business trends are moving the right way, the improvements are nevertheless modest. If you owned Brinker stock for this entire year, pat yourself on the back. But temper expectations for the coming year, because I bet a different company will take the crown for the top restaurant stock in 2025.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group and Sweetgreen and recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
