Once an editor at Restaurant Finance Monitor said that “If you were unemployed last month and this month you get a job, one of the first things you’re going to do is what? Go out and eat.” Hence, restaurants are likely the first ones to gain from an improving economy and employment trend.

With more people choosing to dine out these days, it is needless to say that the restaurant industry is poised to benefit. Therefore, as the economy recovers, fast-food restaurants need to step up their game. Right from menu innovation to introducing digital platforms to providing healthy food, all these initiatives are targeted toward meeting consumer preferences. However, this requires substantial capital.

While the big players are already sitting on a cash pile, the new entrants need to infuse capital into their business from time to time. An Initial Public Offering (IPO) of common stock thus acts as a medium for the relatively new players to raise additional capital.

Will the Current Market Turmoil Affect Impending IPOs?

While most of the restaurant stocks that debuted on the stock exchange in the recent times traded much higher than the expected range after their IPOs, the recent turmoil owing to the Chinese stock market debacle could have an impact on the timing and valuation of future restaurant IPOs.

However, some market analysts believe that it is too early to believe that the shaky market would cast a shadow on the IPO market. They expect the industry’s strong fundamentals and sales initiatives undertaken by the restaurants to steer them through the tough times.

7 Restaurant Stocks that Exceeded Expectations After IPO

Wall Street has shown an increasing appetite for restaurant companies of late. There have been a number of IPOs in the restaurant industry since the beginning of 2014 and the majority of them have been rather successful. Here we look at the performance of seven restaurant stocks that have lived up to market expectations since they began trading.

Bojangles', Inc. (BOJA - Snapshot Report) is a quick service restaurant chain specializing in chicken items. It began trading on NASDAQ in May 2015. The company has posted two quarterly results so far. It has beaten the Zacks Consensus Estimate for earnings in both the quarters and currently has a positive average earnings surprise of 22.29%. With its limited time-offerings, expansion strategy, extensive cooking process and technology initiatives, this Zacks Rank #2 (Buy) company has posted positive comps for 21 consecutive quarters.

Based in Texas, Zoe's Kitchen, Inc. (ZOES - Snapshot Report) began trading on NYSE in Apr 2014. Since then the company has posted six quarterly results. This fast casual Mediterranean cuisine restaurant  has surpassed the Zacks Consensus Estimate for earnings in five quarters while matching the same in one. Over the trailing four quarters, the company has a positive earnings surprise of 77.08%. The company’s efforts to develop new menu items and its aggressive marketing campaigns to promote these contributed to growth. This Zacks Rank #3 (Hold) company has posted positive comps for 22 consecutive quarters.

Shake Shack Inc. (SHAK - Snapshot Report) a New York City-based seller of burgers, crinkle-cut fries and custard shakes, began trading in Jan 2015. Since then, the company has posted better-than- expected results in all the three quarters that it has reported so far and has a positive earnings surprise of 155.56%. Shake Shack’s cult following and successful expansion into various cities around the world are expected to boost comps going forward. This Zacks Rank #2 company is positioned well to cash in on the surging popularity of the U.S. fast-casual market.

Wingstop Inc. (WING - Snapshot Report) that specializes in cooked-to-order, hand-sauced and tossed chicken wings began trading in Jun 2015. Since then, the company has reported results for one quarter in which it beat the Zacks Consensus Estimate for earnings by 22.2%. Driven by bold flavor offerings, large, value-oriented family packs, as well as meals for two and individual combo meals, domestic store sales of the company have grown for 11 consecutive years through 2014. Meanwhile, revenues and net income grew 14.3% and 19.3%, respectively in 2014. Consistent expansion is another key growth driver for this Zacks Rank #3 company.

Dave & Buster's Entertainment, Inc. (PLAY- Snapshot Report) that begun trading in Oct 2014 has posted three quarterly results so far and exceeded expectations every time. The company has an average positive earnings surprise of 20.33% for the trailing three quarters. The core concept of the company is “Eat Drink Play and Watch” at one location. Its menu comprises “Fun American New Gourmet” entrées and appetizers and a full selection of non-alcoholic and alcoholic beverages. This Zacks Rank #2 company is scheduled to report its second quarter earnings on Sep 8.

The Habit Restaurants, Inc. (HABT - Snapshot Report) is a fast-casual restaurant that began trading on NASDAQ in Nov 2014. To date, the company has posted three quarterly results wherein it beat the Zacks Consensus Estimate for earnings. This Zacks Rank #2 company has an average positive earnings surprise of 39.29%. Habit Restaurants is a popular burger chain that offers hamburgers, salads, sandwiches, shakes, and French fries.  Its most popular item is the “Charbuger,” a 100% ground beef patty that comes dressed in mayo, pickles, fresh tomato, lettuce, and caramelized onions on a toasted bun. The company has posted 46 consecutive quarters of positive comps.

Fogo de Chao, Inc. (FOGO - Snapshot Report) began trading on NASDAQ in Jun 2015 and beat the Zacks Consensus Estimate by 77.8% in its last reported quarter. This Zacks Rank #3 company specializes in fire-roasting high-quality meats utilizing the centuries old Southern Brazilian cooking technique of churrasco. Driven by sales boost initiatives like menu innovation, marketing through various channels, re-imaging of restaurants and expansion efforts, the company reported $262 million in revenues from only 35 locations in the U.S. and Brazil in 2014, up 20% year over year.

What’s Driving These Stocks?

Besides loyal customer base and successful expansion into various cities around the world, there are other factors that are driving sales of these restaurants. These include better-than-expected job growth along with strong construction spending, automobile sales and housing numbers, stabilizing energy costs and rising consumer confidence.

The Restaurant Performance Index (RPI) that tracks the health and outlook for the U.S. restaurant industry stood at 102.7 in July, up 0.7% from June. This marked the 29th consecutive month in which the RPI remained above 100. The Current Situation Index that measures trends in four industry indicators namely same-store sales, traffic, labor and capital expenditures stood at 103.7 in July, up 1.2% from the sequentially preceding month and recorded the strongest increase since Dec 2014. This was the 17th consecutive month in which the Current Situation Index remained above 100.

Notably, 59% of the restaurant operators reported an increase in customer traffic between Jul 2014 and Jul 2015, up from 47% restaurants that reported higher traffic in Jun 2014.

With the trend likely to continue, market analysts expect the second half of 2015 to be better than the first half. We believe that the above mentioned stocks with strong fundamentals and growth prospects are capable of meeting investors’ expectations going forward as well.