Bear of the Day: Red Robin Gourmet Burgers (RRGB)

The restaurant business is a notoriously difficult one. This may be especially true in the burger business, thanks to intense competition and a bit of a
burger craze over the past few years which has once again focused consumers and investors on this market.

But after a flurry of IPOs, key changes at behemoth McDonald’s, and waning consumer and investor interest in the market, several companies are beginning to
feel the pain in this cutthroat market. One such burger stock that has been having a rough time and really epitomizes this trend is definitely Red Robin
Gourmet Burgers (RRGB).

Inside RRGB’s recent performance

Red Robin was really ahead of the curve with its more gourmet burgers and it was arguably one of the key leaders in the ‘better burger’ movement. This led
to big stock price gains a few years ago, and led to massive returns for investors who had been in the stock for the long haul.

However, the incredible run came to an end in the summer of 2015 and the company has been on a downward trajectory—at least in terms of its stock
price—ever since. In fact, the stock has lost about 39% over the past 52 weeks and it even missed earnings estimates in their most recent report. But that
might not be the end of the pain for RRGB, at least if we look to recent earnings estimate revisions.

Recent Estimates

Analysts have been ratcheting down their expectations for RRGB’s upcoming quarter and the full year too in recent weeks. Not a single estimate for either
the current quarter or the current year has gone higher in the past two months, while at least five have gone lower for both of the time periods.

And the magnitude of these declines has also been troubling, as the current quarter consensus has fallen by over 16% in the past two months, while the
following quarter has seen a nearly 20% decline. The full year outlooks aren’t much better, as they have fallen by about 7.7% for the full year and over
8.7% for the following one, suggesting that more pain could be ahead for RRGB.

That is why we currently have RRGB as a Zacks Rank #5 (Strong Sell) and why we are looking for this stock to continue its bearish run. Note that just five
percent of all stocks that we cover receive this low grade, so it is hard to find companies that are worse-off from an earnings estimate look than RRGB is
right now.

Other Choices

As you can see, you should probably avoid Red Robin stock right now, and at least until they can turn around their earnings estimate picture. In the
meantime, there are plenty of other restaurant stocks to snack on, including a few ‘buy’ ranked stocks.

In particular, Wingstop (WING) or Papa John’s ( PZZA) look like solid buys these days, and have just been upgraded from ‘hold’ territory.
Additionally, both beat earnings estimates last quarter, unlike RRGB, making them potentially better picks going forward for investors who want to stay in
this corner of the retail market.

So Where Are the Profitable Trades?

Be sure to avoid this Bear of the Day stock. Now, would you like to see Zacks’ recommendations that have the best profit potential? Starting today, for the
next month, you can follow all our private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . .
from insider trades to companies that are about to report positive earnings surprises (we’ve called them with 80%+ accuracy). You can even look inside
portfolios so exclusive that they are normally closed to new investors.

Click here for all Zacks trades >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research