Investing News

Restaurant stocks have served up gains this week after U.S. Census Bureau data revealed that the industry’s total sales topped $70.6 billion in June, up 2.3% from May’s sales volume and 6.6% above February 2020’s pre-pandemic sales figure of $66.2 billion. It marks the fifth solid gain in the past six months, raising hopes that increased vaccination rates are giving diners the confidence to venture back to restaurants and up their spend on takeout. The restaurant group also received a boost Thursday from Domino’s Pizza, Inc.’s (DPZ) quarterly earnings, which came in well ahead of Wall Street expectations.

Key Takeaways

  • Restaurant sales climbed to $70.6 billion in June, up 2.3% from May.
  • Domino’s Pizza surpassed top- and bottom-line forecasts, which may result in follow-though buying.
  • Yum! Brands shares broke through a trendline resting above a recent consolidation area.

Below, we take a closer look at Domino’s earnings and Yum! Brands, Inc. (YUM) before exploring several chart-based trading ideas to capitalize on recent momentum.

Domino’s Pizza, Inc. (DPZ)

Domino’s offers pizzas in the United States and globally under the Domino’s brand name through company-owned and franchised stores. The Ann Arbor, Michigan-based chain blew past earnings expectations, reporting a second quarter (Q2) adjusted profit of $3.12 per share vs. expectations of $2.87, with the bottom line improving 4.3% from a year earlier. Revenues of $1.03 billion also came in ahead of forecasts, which analysts had pegged at $972.3 million. Soaring demand for pizza during the quarter saw same-store sales grow 3.5%, while on a two-year basis, comparable store sales jumped 19.6% during the period. Domino’s has a market value of $20.92 billion, yields a modest 0.79%, and has enjoyed supersized gains of around 40% since the start of the year as of July 23, 2021.

Since the 50-day simple moving average (SMA) crossed above the 200-day SMA in mid-May, the share price has continued to trend sharply higher. Yesterday’s better-than-expected earnings report propelled the stock to a new all-time high that could lead to follow-through buying in subsequent sessions. Those who buy here should consider using a trailing stop to play the strong bullish momentum. To do this, place an initial stop at the midway point of Thursday’s wide-ranging bar and raise the order under the low of each higher bar until stopped out.

A trailing stop is a modification of a typical stop order that can be set at a defined percentage or dollar amount away from a security’s current market price.

Yum! Brands, Inc. (YUM)

Yum! Brands operates and franchises quick-service restaurants. It houses iconic brands KFC, Pizza Hut, Taco Bell, and The Habit Burger – which combined generated 2020 systemwide sales of $50 billion. Analysts anticipate the company to post Q2 adjusted earnings per share of 95 cents when it releases quarterly financial results later this month. This represents bottom-line growth of 16% from the year-ago reported figure of 82 cents per share. As of July 23, 2021, Yum! Brands stock offers a 1.71% dividend yield and has added 10.78% year to date (YTD).

After trending higher between late March and early May, Yum! shares consolidated over the next two months. Tailwinds from the upbeat June restaurant data and impressive earnings from Domino’s helped push the share price through a trendline resting above the recent consolidation area. Active traders who enter at these levels should think about using a fast-period moving average, such as the 10-day SMA, to let profits run. Then, simply remain in the trade until the price closes below the indicator.

Consolidation refers to an asset oscillating between a well-defined pattern of trading levels. Consolidation is generally interpreted as market indecisiveness.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.