Why Investors Are Gobbling Up Fast Food Stocks

As I wrote earlier in the week, this market has been maddeningly up and down of late. But one surprising sector has been flourishing while the rest of Wall Street waffles.

Fast food stocks are almost uniformly outperforming the broad market in 2015—many of them by a very wide margin. In a year in which the S&P 500 is up just 2.7% through Wednesday, many fast food stocks have posted double-digit gains.

Take a look:

  • Wendy’s (WEN): +27.5%
  • Yum! Brands (YUM): +25.6%
  • Papa John’s (PZZA): +23.1%
  • Domino’s Pizza (DPZ): +15.7%
  • Sonic (SONC): +10.9%
  • Potbelly (PBPB): +10.9%
  • Jack in the Box (JACK): +8.8%
  • Zoe’s Kitchen (ZOES): +8.4%
  • Panera (PNRA): 4.0%

The only high-profile fast food company whose shares have fallen flat this year is Chipotle Mexican Grille (CMG), down nearly 11% year-to-date after big gains the previous two years. (McDonald’s, the heavyweight of the fast-food industry, has traded roughly in line with the market thus far in 2015.)

Why the rush to fast food stocks? There are several factors at play.

For starters, the improving U.S. economy has emboldened Americans to eat out more than ever before—even more than they eat in! In March, Americans spent more money at restaurants and bars than they did at grocery stores—the first month that has happened since the U.S. Commerce Department began tracking statistics in 1992.

Much of that eating-out money is being spent at fast-food restaurants, especially among younger consumers. Americans spent $195 billion at fast-food restaurants in 2014, up from $191 billion the year before and $171 billion a decade ago. Fast-food spending is expected to top $200 billion next year, and could come close to topping it this year.

A study of 1,000 adults, performed last year, found that the average American spends $1,200 a year on fast food—roughly twice per week! (And we wonder why there’s an obesity epidemic…)

As our waistlines expand with every trip through the drive-through window, so too do the fast-food companies’ wallets. Wendy’s 2014 earnings per share nearly tripled from the previous year. Papa John’s, Domino’s, Potbelly, Sonic and Jack in the Box also saw significant year-over-year EPS increases. And despite its stock’s struggles thus far in 2015, Chipotle’s sales have improved every year since 2006.

Other factors have contributed to the stellar performance in fast food stocks this year. In some cases, investors were simply buying low: Potbelly had a disastrous 2014 on the heels of its October 2013 IPO, declining 46%; Yum! Brands (-3%) and Panera (-0.7%) were also in the red last year, and Wendy’s (+2.8%) trailed the market by a wide margin.

Also, consumer confidence continues to escalate as the 2008-09 recession fades further and further in the rearview mirror. The consumer-confidence index topped 95 in April, up from 80 just over a year ago. Low gas prices and the declining unemployment rate are likely fueling that confidence, and thus translating to more meals out.

Perhaps the biggest reason behind the fast-food rush is a philosophical one, something you can’t put a number to. This age of short attention spans has given rise to things like texting and tweeting—actions that enable us to communicate with each other and get our information quickly. Isn’t it only natural that we want our food fast too?

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