The franchise business model has long been a popular one, and franchising is an easy way to develop a business. Once you have a successful concept, you can outsource the work of opening new stores to franchisees, who replicate that concept as the franchise owners.
This creates a win-win situation for both parties: The franchisees get the benefits of a well-known brand, a blueprint for operating a business, and ongoing support. The franchisors get to collect franchise fees, including royalties on sales and money to fund advertising.
If you're not interested in running your own small business, one of the best ways to get exposure to this industry is by investing in franchise stocks or the stocks of publicly traded franchise companies. Franchising is a popular business model among fast-food restaurants and is also common for hotels, gyms, travel planning services, and commercial cleaners. At scale, franchise stocks tend to generate high profit margins because franchisors have relatively low fixed costs and collect recurring revenue from royalties.
Let's take a look at some of the best available publicly traded franchise stocks today.
Publicly traded franchise companies
List of publicly traded franchise companies
Below is a list of some of the most popular non-restaurant franchise companies.
| Company | Ticker | Business Description |
|---|---|---|
| Planet Fitness | (NYSE:PLNT) | Operator of low-cost gyms. |
| Marriott International | (NASDAQ:MAR) | World's largest hotel operator. |
| Snap-on Tools | (NYSE:SNA) | Seller of a branded range of tools and related products. |
| RE/MAX Holdings | (NYSE:RMAX) | Franchisor of real estate and mortgage brokerages. |
1. Planet Fitness
Planet Fitness was a model of excellence before the coronavirus pandemic as the company steadily expanded across the country. Its low-cost model, with monthly membership prices starting at $10, helped to ensure consistent demand.
Since its 2015 IPO, the stock price is up more than 300%. The stock steadily gained in its early years but its traded mostly sideways in the years following the pandemic as its valuation may have gotten ahead of the business.
The company's number of locations recently surpassed 2,500 in the U.S., and it expects to expand to 4,000 gyms or more, giving Planet Fitness plenty of room to grow. With a high-margin business and a budget-priced product, the gym stock looks like a good long-term bet.
2. Marriott International
Marriott became the world's largest hotel chain in 2015 with its acquisition of Starwood Hotels & Resorts, meaning that it's also one of the biggest franchisors in the world.
Hotel chains were hit hard by the pandemic, but Marriott's stock has rebounded well, helped by the post-pandemic travel boom. Additionally, one of the strengths of the franchise model is that it insulates the franchisor from economic downturns or black swan events like the pandemic by removing many of the fixed costs that operators are obliged to pay.
Marriott delivered strong results in 2023 with revenue up 14% to $23.7 billion and a 12% increase in operating income to $3.86 billion. If you're looking for stocks in the travel industry, hotel franchisors like Marriott can be a safer option than alternatives like airlines and cruise lines, which have higher fixed costs.
3. Snap-on Tools
Snap-on Tools calls itself the world's No. 1 tool brand. Franchisees sell its products from mobile stores, which are essentially trucks branded as Snap-on Tools stores.
Snap-on has delivered steady growth over its history. The need for tools won't go away and is closely tied to economic growth. Its revenue rose 5% in 2023 to $4.73 billion, and the company posted an operating profit margin of 22%, which is a reflection of the strength of the franchise model and does not include franchisee financing, a lucrative business for Snap-On.
The company's brand and its wide range of tools and equipment have made the stock a historical outperformer. Its business model should continue to deliver solid results since there is always a market for its products.
4. RE/MAX Holdings
The housing market has struggled since the pandemic ended, which dragged down shares of RE/MAX and nearly every other real estate stock. However, that sets up an opportunity for a recovery as mortgage rates are expected to come down soon.
The company is the world leader in residential real estate sales by transactions and is therefore well positioned to capitalize on the recovery. Today, the brand has more than 140,000 agents in nearly 9,000 offices across 110 countries and territories.
After a decline during the 2007-2010 housing bust, the business grew steadily over the next decade, though the post-pandemic housing slump squeezed the business.
The company also has a track record of raising its dividend, and it currently offers a dividend yield of 10%, making RE/MAX a great choice for dividend investors. That also highlights one of the strengths of the franchise model, as it can deliver profits even in challenging environments.
Publicly traded restaurant franchises
Publicly traded restaurant franchises
Restaurants are the best-known type of franchise business. Below are some of the best restaurant franchise stocks.
| Company | Ticker | Business Description |
|---|---|---|
| McDonald's | (NYSE:MCD) | World's biggest fast-food chain by sales and known for its burgers and fries. |
| Wingstop | (NASDAQ:WING) | Popular purveyor of chicken wings that favors a takeout/delivery model. |
| Domino's | (NYSE:DPZ) | Biggest pizza delivery chain in the world and a pioneer of the delivery-focused model. |
1. McDonald's
The fast-food giant has more than 38,000 locations around the world, with the vast majority -- more than 90% -- owned by franchisees. A few years ago, McDonald's converted many of the company's restaurants in China and other international markets into franchises, giving the company even more of an "asset-light" model that freed it of the fixed costs of running restaurants. McDonald's also owns much of the real estate on which its franchise restaurants are built, allowing the company to collect rent from franchisees.
The fast-food giant has seen challenges from inflation as consumers cut back on spending, but it's been a steady winner throughout its history, and that's unlikely to change given its name recognition, prime locations, and marketing muscle.
2. Wingstop
Wingstop is much smaller than McDonald's, but the chicken wing seller offers a low-cost initial franchise fee and a simple menu, making its franchises easy to operate. It's also been a big winner in recent years since its small-footprint model lends itself well to takeout and delivery, and it's known for inexpensive locations. Domestic same-store sales surged 18.3% in 2023, continuing a blistering run for the company.
Chicken at fast-food restaurants has also proven popular, as evidenced by the success of peers such as Chick-fil-A and Popeyes, the latter owned by Restaurant Brands International (QSR -1.37%). Wingstop now has more than 1,500 locations around the world, giving it plenty of room to grow.
3. Domino's
You might be surprised to learn that Domino's has been one of the best-performing stocks on the market since the great financial crisis, with its share price up more than 3,000% from the bottom. A successful turnaround plan that included reformulating the company's pizza recipe has helped to drive the company's growth during the decade, and its strength in delivery has made it popular during the pandemic.
Domino's also has an appealing concept for franchisees as it offers a low-cost initial investment and a simple menu that combine with the global popularity of pizza delivery to make Domino's appealing to many entrepreneurs.
Related investing topics
Are they right for you?
Are franchise stocks right for you?
Franchise stocks aren't easy to pigeonhole since they hail from a wide range of sectors, including restaurants, retail, and travel.
However, publicly traded franchise companies tend to have a few things in common. They are high-margin businesses since the franchise model shifts the risks and fixed costs to the franchise owner, and they tend to have well-known, valuable brands, which create competitive advantages.
Because the franchise model works best with well-known brands, these companies tend to be mature businesses, although there are some exceptions. Many franchise companies are also dividend-paying stocks, a sign of a business with reliable profits.
Overall, this business model offers a number of advantages, including high margins, the ability to rapidly expand, and low fixed costs. If you're looking for a combination of growth and reliable profits that are recession-resistant, then franchise stocks likely deserve a place in your portfolio.
