Restaurants are go-to meeting hubs for friends, family, and colleagues. But it’s not all sunshine and rainbows as they’re notoriously hard to run thanks to perishable ingredients, labor shortages, or volatile consumer spending. These factors have weighed on the industry over the past six months as its 4.4% return has fallen short of the S&P 500’s 13.1% gain.
A cautious approach is imperative when dabbling in these companies as many will light cash on fire by opening new locations without the proper justifications. Keeping that in mind, here are three restaurant stocks we’re passing on.
Starbucks (SBUX)
Market Cap: $114 billion
Started by three friends in Seattle’s historic Pike Place Market, Starbucks (NASDAQ:SBUX) is a globally-renowned coffeehouse chain that offers a wide selection of high-quality coffee, beverages, and food items.
Why Are We Hesitant About SBUX?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Projected sales decline of 1.6% for the next 12 months points to a tough demand environment ahead
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 3 percentage points
At $100.03 per share, Starbucks trades at 34.6x forward P/E. Check out our free in-depth research report to learn more about why SBUX doesn’t pass our bar.
Papa John's (PZZA)
Market Cap: $712.1 million
Founded by the eclectic John “Papa John” Schnatter, Papa John’s (NASDAQ:PZZA) is a globally recognized pizza delivery and carryout chain known for “better ingredients” and “better pizza”.
Why Are We Bearish on PZZA?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Projected sales decline of 5.7% for the next 12 months points to a tough demand environment ahead
- Efficiency has decreased over the last year as its operating margin fell by 2.6 percentage points
Papa John's is trading at $21.71 per share, or 19.6x forward P/E. To fully understand why you should be careful with PZZA, check out our full research report (it’s free).
Kura Sushi (KRUS)
Market Cap: $511.1 million
Known for its conveyor belt that transports dishes to diners, Kura Sushi (NASDAQ:KRUS) is a chain of sushi restaurants serving traditional Japanese fare with a touch of modernity and technology.
Why Are We Cautious About KRUS?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Cash-burning history makes us doubt the long-term viability of its business model
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Kura Sushi’s stock price of $42.32 implies a valuation ratio of 294.8x forward P/E. Read our free research report to see why you should think twice about including KRUS in your portfolio.
Stocks We Like More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662% between October 2022 and February 2026. AppLovin before it ran 753% between February 2024 and February 2026. Nvidia before it ran 1,178% between January 2023 and February 2026. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.