How I Made $5000 in the Stock Market

Fast-Casual Restaurant Stocks Lost Their Sizzle. What Could Bring Them Back.

Oct 04, 2025 01:30:00 -0400 by Evie Liu | #Restaurants

Fast-casual restaurants have plenty of room to open new stores and increase top-line growth. (Luke Sharrett/Bloomberg)

Key Points

Fast-casual restaurants have spent the past decade convincing diners they could deliver fresher food and a better experience than fast food, minus the wait or high price of a sit-down meal. It worked—until this year. Now those chains are pushing up against the limits of that marketing pitch.

Fast-casual chains are struggling with the same reality that plagued fast food a year ago: consumers are tired of paying more at restaurants after rounds of price hikes. Many are skipping dining out, opting to cook more at home. Even more affluent diners are balking at paying $15 or more for a salad or burrito bowl.

As a result, the middle tier—too pricey for value seekers, too limited for premium spenders—is getting squeezed. Promotions at fast-food giants McDonald’s and Restaurant Brands International’s Burger King are pulling in budget-conscious customers, while sit-down restaurants like Darden Restaurants’ Olive Garden and Texas Roadhouse appear to be better options for date nights, friend gatherings, or special occasions.

The rising economic pressure on Gen-Z, a major group of consumers behind fast-casual chains, has contributed to the weakness, said Benchmark analyst Todd Brooks. He noted that federal student loan payment collections restarted in May, while the unemployment rate for recent college graduates has grown to 5.8% in March 2025, up from 4.1% two years ago.

“We believe that these headwinds are leading younger consumers to cut their frequency of visiting their favorite fast-casual concepts,” wrote Brooks in a note to investors last month.

For years, Chipotle Mexican Grill has been the fast-casual category’s gold standard, opening dozens of new stores each quarter and minting profits enviable across the industry. But its most recent quarter was the weakest in memory: Same-store sales fell by 4% from a year ago, even as overall revenue rose thanks to new locations.

Likewise, chicken chain Wingstop saw a 2% drop in comparable sales for the three months ended in June, the first time in three years after many quarters of over 20% gains. Comparable sales at Mediterranean chain Cava Group were up only 2% in the latest quarter, significantly down from the 11% growth in the three months prior and the 21% growth two quarters ago.

That kind of slip might not sound disastrous, but for companies that had built a reputation on never missing a beat, it rattled investors. Chipotle shares have declined 30% year to date, Cava lost nearly 45%. Wingstop shot higher earlier this year, but started tumbling after the latest earnings report, and are now down 15% for the year. None are trading like growth darlings anymore.

Sweetgreen, the salad chain that once saw over 20% revenue growth each quarter, had it even worse. Despite the hype about its automated kitchen that would cut costs and boost profit, investors are more concerned about its soft top-line. Total sales barely increased last quarter, while existing restaurants saw a steep 8% drop in revenue. The stock has plunged 75% this year.

To be sure, fast-casual chains still have plenty of room to open new stores and increase top-line growth. But when same-store sales are soft, investors start to wonder if expansion is masking deeper problems, and they might not be willing to pay a premium for growth in an unpredictable economic environment.

About one year ago, Wingstop and Cava shares were trading at around 18 times the estimated sales for the forward fiscal year. That is more than double the valuation of mature fast-food chains like McDonald’s.

Fast-casual, though, isn’t going away. People still like the idea of fresher, better food on the go. But in 2025, it turns out that what people like even more is value. Until these chains prove that they can deliver both, investors should expect more turbulence in the sector.

Wall Street has largely kept its faith: Most analysts maintain a Buy or Hold rating for fast-casual stocks, with average target prices much higher than current levels. With the group trading at historically low valuations, many believe the stocks are an attractive opportunity now. Chipotle and Cava, particularly, appear to have a better chance to bounce back.

BTIG analyst Peter Saleh said Chipotle stock is being punished for the perception of expensive menu prices across the fast-casual segment. According to a pricing survey from BTIG, an average entree at Chipotle costs $10.31, much less than competitors like Cava and Sweetgreen, whose prices are typically 30% to 40% higher, approaching $15.

“Chipotle can do much more to highlight its value proposition,” wrote Saleh in a September report, noting that the burrito chain has recently started referencing a specific price point in its advertising, the first time in his years of coverage.

Stifel analyst Chris O’Cull is encouraged by Chipotle’s recent rollout and advertising of the “Build Your Own” meal, which could feed four to six individuals at an attractive price. “The offering has the potential to drive incremental group occasions as customer awareness increases,” the analyst wrote in a recent report.

For Cava, the weaker-than-expected comparable sales were partly due to particularly strong results last year. Sales at Cava’s new restaurant openings in 2024 were ramping up faster than management expected. As the early boost moderates and sales level off, the new restaurants have dragged on 2025’s results.

This demonstrated the “power and the strength” of the Cava brand, said CEO Brett Schulman at a meeting with analysts last month, “It really underscores the demand that the consumer has for our product, how we resonate in all parts of the country, and underscores the opportunity that we have that lies ahead.”

Sales in the second half of 2024 were also boosted by the successful introduction of grilled steak, which has created a higher bar to meet. Last month, the chain launched the limited-time chicken shawarma that can be added to bowls or pita wraps, while salmon is a new menu item set for next year. If successful, these items could attract more customers and improve store traffic.

The company has redesigned its loyalty program to better engage with its ardent fans. It’s also reaching scale in many markets where marketing—a lever they have barely touched—could become a powerful driver, said Stifel’s O’Cull: “We see the recent weakness as a temporary setback, not a change in the fundamental outlook.”

After the recent pullbacks, Chipotle and Cava stocks are trading at 4.5 and 6.3 times forward sales, respectively—both cheaper than McDonald’s now.

Write to Evie Liu at evie.liu@barrons.com