NEW YORK (TheStreet) -- Restaurants are increasingly embracing digital technology and this could mean big profits for the companies and investors, too.
"The convergence of restaurants and technology is reaching a tipping point, driving the creation of new business models, as well as significant opportunities and challenges for industry players," according to a Pacific Crest Securities research note. "Companies that lever key technology attributes (which we call 'Digital DNA') will be well positioned to gain out-sized market share and industry profits. The opportunities for industry change and market share shifts remain underappreciated." Pacific Crest Securities is a subsidiary of KeyCorp (KEY).
The analysts point out four reasons why technology is important to restaurant operations. Technology: alters competitive positions; increases guest spending; improves customer acquisition and experience; and lowers cost to serve, according to the note.
Consumers are rapidly embracing restaurant tech innovations, the note said. For instance, approximately 10 million customers have downloaded Domino's Pizza (DPZ) mobile app and more than 50% of Papa John's (PZZA) U.S. sales are through digital devices.
So how can investors take advantage of this digital "convergence"? Pacific Crest named five stocks -- three restaurant chains that are embracing digital technology and two tech companies providing the payment solutions and processing -- to buy now. TheStreet added ratings from TheStreet Ratings for added perspective.
TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.