Fast Food is Still a Deliciously Profitable Investment Opportunity
In 1921, White Castle opened the very first fast food restaurant in the world in Wichita, Kansas. The concept was a huge hit with the American public seeking inexpensive meals prepared in just a few minutes. From the 1930s to the 1950s, fast food restaurants from burgers to pizza to fried chicken popped up all over the country. Major brands started to look to international markets in the 1970s with the goal of expanding their empires to every corner of the globe. Today, the fast food industry is valued at over $600 billion dollars worldwide.
Each year, November 16th is recognized as National Fast Food Day (think of it as Thanksgiving, only faster). While the general public celebrates by enjoying their favorite meal, investors through careful fundamental analysis can seize the opportunity to invest in some of the most profitable fast food brands.
Why Fast Food is Still a Hot Investment
There is a lot of potential upside to investing in the fast food industry. Experts project that fast food will grow at an annual rate of about 4.6% each year (reaching nearly $1 trillion by 2030). In addition to respectable growth, fast food has many unique advantages compared to other restaurant types.
- Inflation Resistant - According to the Bureau of Labor Statistics, food prices across the United States are up approximately 11% due to rapid inflation. Normally, inflation is bad for most businesses, but fast food restaurants are seeing some benefits. Consumers don’t want to give up eating out, so many are moving from pricier sit-down restaurants to fast food options. For example, summer visits to McDonald’s have increased by about 5% despite the restaurant industry seeing a decline of 8% during the same period.
- Rising Wages - The fast food industry employs about 5 million people in the United States alone. Because of the rising cost of living, fast food workers are demanding more pay. The median wage for fast food workers in the US is about $12 per hour, but states like California and New York can see wages that are about 25% to 30% higher. Since many of the tasks in fast food restaurants are highly repetitive, they are eligible for some level of automation through robotics and artificial intelligence. While we won’t see Jetsons-like food preparation any time soon, fast food restaurants of the future will likely need fewer employees to operate.
- Untapped Markets - Major international markets have caught on to fast food. However, there are still many untapped markets around the world. Outside of North America, Europe, and select Asian countries (primarily Japan and South Korea), fast food still has a lot of growth potential. It’s hard for many people to believe that there are about 90 countries in the world that still don’t have a McDonald’s.
Top Fast Food Brands to Watch
No other brand represents the fast food industry more than the golden arches of McDonald’s. With over 38,000 locations globally, McDonald’s is a solid investment choice. Overall, McDonald’s is ranked slightly ahead of its industry peers (score of 71 compared to the industry average of 65). Their strength lies in their income statement where they have strong revenue efficiency and return on equity. It’s unlikely that the industry will grow without McDonald’s participating in that growth.
Click here to see the full McDonald's report analysis
Wendy’s Company (WEN)
Wendy’s is a relatively small company compared to giants like McDonald’s and KFC. Valued at $4.5 billion, Wendy’s operates about 7,000 locations in 30 countries. While they are fairly equal in most categories compared to their peers, they excel in income statement metrics and cash flow. Wendy’s also has the most growth potential in terms of untapped markets.
To read more, click here for the full Wendy’s report analysis
YUM Brands (YUM)
Yum Brands is one of the largest fast food companies in the world based on the number of total locations (over 43,000 locations globally). Yum Brands owns several heavy hitters including Taco Bell, KFC, and Pizza hut. They have one of the lowest PE ratios (23.6) compared to other major brands indicating a favorable stock price. Yum Brands has struggled a little in terms of cash flow (down 12% from the previous reporting period), but they exceed in almost every other category. Yum Brands is also a great investment choice because they are diversified across several types of food.
Check out the full Yum Brands report analysis here
Leveraging Strong Fundamental Analysis When Investing in Fast Food Companies
The future looks very promising for the fast food industry. Despite the strong economic outlook, it's critical to always take the time to properly research and conduct a thorough stock analysis before purchasing any company shares. Fortunately, technology such as AI-based research and stock analyzing APIs are making it easier to find profitable stocks. Investors who take advantage of the current market conditions backed with solid research will have the upper hand when picking fast food stocks.