Satisfy your hunger with these 3 fast food stocks

Food retail chains can offer great investment potential

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One of the best sources of good investments are chain stores because once the company has created a successful business model, they simply replicate it in new areas, and their growth takes off. Investors get an early peak because they can do their own "stock research" by visiting and trying out the product or service.

Amongst those chains, food retailers have a great advantage since they can have a steady flow of customers, and set up doesn't require a big distribution centre, and many times available space at a shopping mall food court is all they need.

Domino's Pizza Enterprises (ASX: DMP) has given a fantastic return to its investors over the past 4 years. Instead of ordering pizza, if had put in some buy orders for the stock, you'd have more than 4 times your money as the share price swelled from about $3 to $14.30 now.

It has performed well against rival Pizza Hut, taking market share, but itself only makes up an estimated 2.5% of the total fast food service industry in Australia.  The company has stores in Australia, New Zealand and Europe, and just entered a deal to buy a 75% stake in Domino's Pizza Japan, which will add 259 stores immediately plus 350 more potentially in the future.

Retail Food Group (ASX: RFG) operates such chains as Brumby's Bakery, Donut King, Michel's Patisserie, as well as coffee retailers bb's café and Esquires Coffee House. It has moved into the gourmet pizza space with its Pizza Capers and Crust franchises. Lastly, it is a wholesale supplier of roasted coffee, and this year purchased a mobile coffee retailer, The Coffee Guy, in New Zealand.

In 2013, it had a net profit after tax (NPAT) of $32 million on $140.7 million in revenue, making its net profit margin 22.7%. Its 5-year average annual earnings after tax growth is 12.5%.  Since January 2013, the share price has gone up 38% from about $3.30 to $4.56.

Collins Foods (ASX: CKF) is a $155 million business by market capitalisation, and operates 122 KFC franchises and 27 Sizzler restaurants in Australia. It is also the franchisor of 54 other Sizzler restaurants in Asia. It listed on the ASX in Aug 2011, and since then has struggled to return to its IPO initial price of around $2.40.

With the talk of a potential sale or IPO of Boost Juice, owned by Zoo Retail, Collins Foods may be looking at the possibility of how the successful fruit juice drink franchise may work into its growth plans.

It raised its NPAT 43%, with earnings rising from $11.4 million to $16.4 million. Revenue was $424 million in 2013, making for a 3.8% net profit margin.

The Foolish Takeaway

Being a consumer is sometimes the best way to be an investor. Buy into the companies that people are buying from mostly, and visit shopping malls and plazas in search of good investment ideas. You still have to do your research on how the company works and performs, but you have the chance to find a success story way before market analysts and fund managers do.

Think about your own total return and find out about companies with good dividends. Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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