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Investors still seem to think food is the best place to put their money.

Mike Pomranz
June 09, 2017

Say what you will about Donald Trump, but his presidency certainly hasn’t been bad for the stock market. The Dow Jones is up nearly 8 percent year-to-date. The S&P 500 is up over 9 percent. The NASDAQ is up over 17 percent. According to Nation’s Restaurant News, restaurant stocks have been especially strong. The site’s NRN Restaurant Index is up a remarkable 20 percent in 2017 alone and up 25 percent since Trump won the election last November. But interestingly, these gains in the market are happening at a time when restaurant sales are actually down. Restaurant industry insights company Black Box Intelligence reports that the industry as a whole hasn’t seen a month of same-store sales increases since February 2016. So what’s accounting for these seemingly diverging trends?

Probably the largest discrepancy is that stock gains can be driven by just a few companies whereas industry sales numbers look at a much broader picture. The NRN Index is built from just 41 large publicly-traded companies. Meanwhile, Black Box Intelligences purports to look at “weekly sales from over 27,000 restaurant units and more than 155 brands representing $67 billion dollars in annual revenue.” As Nation’s Restaurant News’s Jonathan Maze points out, the success of several companies (he mentions McDonald’s, Dardin, Dunkin’ and Yum! as some of the stocks that have recently hit all-time highs) can help buoy a portfolio overall. On the other hand, statistically speaking, a few strong performers are going to have a harder time moving the needle when you’re looking at sales across tens of thousands of restaurant locations.

But Maze makes another interesting argument as to the success of restaurant stocks: Consumer investors have nowhere else to turn right now. “Given the broader weakness, one would think investors would pause before handing out extraordinary valuations to restaurant companies,” he writes. “Yet as bad as it’s been, restaurants don’t have anything resembling the problems at retail shops and other industries facing Internet-based threats. Consumer investors, in short, have few options outside of restaurants — which remain a highly popular place for consumers to spend their money.” Fair enough, as online sales have shuttered many retail brick and mortar businesses, whereas restaurants are still benefitting from increased use of food delivery apps like Seamless/GrubHub.

Still, one would expect that eventually this seeming contradiction would resolve itself, either with sales finally increasing or restaurant stocks coming back down to earth. Though perhaps if sales directly equated to stock value, we wouldn’t be in this situation in the first place.