Second, labor costs may also be on the rise, given the growing pressure to raise the minimum wage, the prospect of which could greatly affect the restaurant industry.
Restaurant stocks as a whole have enjoyed a great run the past five years, and shareholders have been well rewarded. A basket of 40 restaurant stocks I track has returned an average of nearly 30% per year for the past five years.
However, valuations, in my opinion are stretched. That same group now trades at about 40 times trailing earnings.
With the prospect of rising costs, concern over consumer's ability or desire to pay more and rich valuations, the bull market in restaurant stocks may be over.Darden's results may just be yet another indication of what's to come for the industry. Millennials Inheritance Not Guaranteed: Boomer Parents Overspending Oracle Plunges: What Wall Street's Saying Biotech Stock Mailbag: Zafgen, Bluebird, MannKind American Apparel: Is It Fit for a Buyer? At the time of publication, the author held no positions in any of the stocks mentioned. Follow @JonMHellerCFA This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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