Investing in restaurant stocks has allowed shareholders to create significant wealth over time. While the restaurant industry was decimated at the onset of COVID-19, rising demand for food delivery helped the majority of these companies to remain functional amid the pandemic.
Since the pandemic was brought under control, restaurant spending increased significantly in the last two years, resulting in high share prices and valuations across the board.
Here, we compare two quick-service restaurant giants, Krispy Kreme (NASDAQ:DNUT) and Restaurant Brands International (TSX:QSR), to see which restaurant stock is a better buy right now.
The bull case for Krispy Kreme stock
Valued at a market cap of US$2.1 billion, Krispy Kreme is among the most recognizable donut chains in the world. Shares of Krispy Kreme went public in July 2021, and the stock is down 40% in the last three years. So, does the ongoing pullback make Krispy Kreme stock a good buy right now?
In the fourth quarter (Q4) of 2023, Krispy Kreme grew sales by 11.4% year over year to US$450.9 million. Its organic revenue growth stood at US$446 million, up 13.2% year over year, while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at US$64 million, up 14.7% from the year-ago period.
Despite elevated inflation levels, Krispy Kreme improved its EBITDA margins by 40 basis points to 14.2% as it ended the year with 14,147 access points, almost 20% higher year over year.
Krispy Kreme reported double-digit organic revenue growth in 2023 due to strong consumer demand across sales channels. As it continues to grow profitability, Krispy Kreme showcases the benefits of a unique hub-and-spoke operating model.
In March 2024, Krispy Kreme stock surged 30% in a single trading session after it announced a partnership with McDonald’s. According to the terms of this partnership, three flagship Krispy Kreme donuts would be available across McDonald’s restaurants globally by the end of 2026. The deal will help the donut “king” to more than double its restaurant count and distribution network within the next three years.
Analysts expect DNUT stock to expand earnings from US$0.27 per share in 2023 to US$0.44 per share in 2025. So, priced at 27 times forward earnings, DNUT stock is reasonably valued and trades at a discount of almost 40% to consensus price target estimates.
The bull case for QSR stock
Compared to Krispy Kreme, Restaurant Brands International is significantly larger and operates a portfolio of fast-food chains that include Tim Hortons, Burger King, Popeyes, and Firehouse Subs. Valued at US$24 billion by market cap, QSR stock has more than tripled investor returns since its initial public offering in late 2014.
The growth story for QSR is far from over. For example, while McDonald’s has 40,000 restaurants, Burger King ended 2023 with “just” 19,000 locations globally. Burger King accounts for 60% of QSR’s total store count and is a key revenue driver for the TSX giant. In the last year, QSR has focused on aggressively monetizing Burger King locations and improving its brand presence.
Priced at 22 times forward earnings, QSR stock is forecast to grow earnings by 10% annually in the next five years. It also offers shareholders a dividend yield of more than 3% and has increased the payouts by 21% annually in the last nine years.
The Foolish takeaway
Both DNUT and QSR are compelling buys right now. But I’d pick QSR over Krispy Kreme due to its wide rportfolio of brands, higher dividend yield, and lower valuation, which should help the Canadian heavyweight to perform well in the upcoming decade.
