Are Niche Restaurant Stocks Bulletproof or Ticking Time Bombs?

Niche restaurant stocks have been trading sharply higher after well-received earnings from a few of the industry stalwarts. Chipotle Mexican Grill (CMG) rallied 19% in the days immediately following its Q3 announcement. Not to be outdone, BJ’s Restaurants Inc. (BJRI) tacked on as much as 22% to the delight of long-term investors.

Even long-time industry standards like Cheesecake Factory Inc. (CAKE) are experiencing stock advances that seem to outpace any improvement in the fundamental state of the business.

Bullish arguments point to lofty management goals of new store openings, and stronger margins due to cost-cutting and closings of unprofitable locations. But bearish traders continue to see weak nationwide employment as an impediment to growth, and rising food costs could very well cut into margins in coming quarters.

Continue reading . . .