The restaurant industry has spent the last few years in the penalty box.
From labor shortages and rising food costs to tighter consumer wallets and increased delivery competition, the sector has been fighting an uphill battle.
Many operators were forced to pull back on growth, cut costs, and rethink their business models altogether.
However, things are now starting to change.
Fundamentals are showing signs of improvement.
Cost inflation is stabilizing, digital and loyalty strategies are paying off, and the best-run brands are finding ways to operate more efficiently than ever.
Margins are expanding, traffic trends are improving, and free cash flow is back in focus.
This is starting to appear in the charts.
Our Restaurant Index is breaking out 📈
Our equal-weighted Beat Report Restaurant Index — which includes names like McDonald's $MCD, Chipotle $CMG, and Starbucks $SBUX — just broke above a multi-year downtrend line.
This is a textbook breakout after a prolonged bear market.
With the index clearing key resistance, the path of least resistance now appears higher.
Many of these companies are still grappling with significant fundamental challenges, so we reviewed them all to find the best name for you.
What did we find?
Shake Shack $SHAK
SHAK has a record high free cash flow 👇
Shake Shack has been one of the best-performing names in the restaurant industry, and its recent results reveal why.
For years, investors criticized the company for burning cash and struggling to scale profitably.
But now? It’s turning the page in a big way.
Revenue grew 10.5% year-over-year last quarter to $320.9 million, driven by new unit growth, higher menu prices, and strong digital momentum (with digital sales now representing 38% of total Shack sales).
Net income doubled, margins expanded, and adjusted EBITDA climbed 13.5%.
Even better, the management team is guiding for record new unit openings, double-digit top-line growth, and continued margin expansion — despite ongoing macro headwinds.
Behind the scenes, the company is refining its operations, introducing new drive-thru formats, innovating through its kitchen lab, and reducing build costs.
This is happening as the company is expanding its footprint in high-growth regions, including the Sunbelt and international markets.
That operational discipline has paid off... free cash flow is at a record high after 6 consecutive years of being negative.
The technicals are aligning with the fundamentals 👇
Shake Shack closed last week at new all-time highs, putting the finishing touches on a massive multi-year base.
Additionally, the stock has rallied after 6 consecutive earnings reports. This is a clear signal that the market likes what this company is doing.
With the stock resolving higher, cash flows ramping, and the broader restaurant space showing signs of life, we believe this stock is entering the early innings of a powerful new uptrend.
If SHAK is above 138, the path of least resistance is likely to remain higher for the foreseeable future.
Thank you for reading.
- The Beat Report Team
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