Restaurant Growth Stocks Hit a Wall: Inside the Late-February 2026 Selloff

Wall Street spent most of 2024 and early 2025 paying extraordinary prices for fast-casual growth stories. By late February 2026, the bill had come due.

A sharp selloff swept through restaurant growth stocks in the final days of February, dragging down Wingstop, Shake Shack, CAVA, First Watch, and BJ's Restaurants in a concentrated wave of selling. The fast-casual stock index fell 1.3% across Q1. Individual names suffered far worse. Wingstop shed 4.4% in a matter of days, extending a year-to-date decline that left the stock down 11% and trading at $228.57, a full 40.1% below its 52-week high of $381.46 from June 2025. Shake Shack fell 4.9% in the same stretch.

The selling was not random. It was a repricing, a compression of the growth premiums that had been baked into fast-casual names during the easy-money era. And it carried a clear message for operators, franchisees, and the PE firms that have poured capital into the sector: the cost of capital has changed, and so has the tolerance for narrative over numbers.

What Triggered the February Selloff

No single catalyst lit the fuse. The selloff reflected an accumulation of signals that had been building for months.

Sweetgreen's guidance miss hit first and hit hard. The salad chain's stock cratered 27.7% after the company issued weak forward guidance, reminding investors that premium fast-casual valuations carry premium risk when unit economics disappoint. Sweetgreen had been one of the sector's most-watched names, and its stumble sent a ripple through the category.

Chipotle added pressure. The burrito chain missed analyst revenue estimates by 2.1%, a number that would have been forgiven in a different market environment. In late February 2026, it wasn't. Investors who had priced Chipotle as a near-flawless growth machine had to recalibrate.

The selloff in CAVA was particularly instructive, because the numbers did not justify it. The Mediterranean fast-casual chain reported $331.8 million in revenue for Q1, up 28.1% year over year, with same-store sales growth of 10.8%. By almost any operational metric, CAVA was performing. The market sold it anyway. That is what multiple compression looks like in practice: the underlying business holds, but the price investors are willing to pay for future growth contracts.

The Two-Speed Market

While growth names sold off, the sector's two largest legacy brands moved in the opposite direction, and the contrast was stark.

McDonald's reported $7.01 billion in revenue, up 9.7% year over year, beating analyst estimates by 2.6%. The market rewarded the performance. Starbucks was even more emphatic: $9.9 billion in revenue paired with 4% same-store sales growth, enough to send the stock surging. Both companies are in the middle of significant operational overhauls. McDonald's is executing on its value platform and drive-thru improvement program. Starbucks is running Brian Niccol's back-to-basics turnaround playbook. Neither is being valued as a growth story. They are being valued as execution stories, and in the current market, execution is what gets rewarded.

The divergence matters beyond individual stock prices. It reflects a fundamental reordering of what the market is willing to pay for in the restaurant sector.

Potbelly offered a smaller but telling data point on the other end of the size spectrum. The sandwich chain posted $113.7 million in revenue, up 2.3%, beating estimates by 1.7%. Modest numbers by any measure, but the beat was clean, the guidance was credible, and the stock held. In a market scanning for narrative versus reality gaps, a company that delivers without surprise carries real value.

Why This Repricing Is Different

The 2021-2023 era of restaurant investing was built on a specific bet: that fast-casual concepts with strong unit economics and brand momentum could sustain high same-store sales growth for long enough to justify premium multiples. The bet worked, for a while.

What shifted in late 2025 and into 2026 was the math of patience. When interest rates were near zero, investors could discount future cash flows at a low rate and arrive at enormous present values for growth businesses. As rates stayed elevated and macro uncertainty persisted, the same future cash flows were worth less today. Growth companies that need time to prove their unit economics are most exposed to that shift.

Wingstop is the clearest example of the mechanism. At $381.46 in June 2025, the stock was pricing in years of continued unit growth and same-store sales expansion. At $228.57, it is pricing in a more conservative version of that future. The business has not collapsed. The valuation had gotten ahead of what the fundamentals could support at prevailing discount rates.

The same dynamic, at smaller magnitudes, explains the pressure on Shake Shack and First Watch. These are real businesses with real growth. They are also businesses that trade at multiples that require the market to believe in optimistic long-run scenarios. When sentiment shifts, that belief gets priced out first.

What This Means for Franchise Economics and Capital Allocation

The repricing at the public market level has real downstream effects on private capital.

When fast-casual brand equity is being marked down in public markets, it compresses the valuations that private equity and franchise buyers can rationalize. A franchisee or a PE buyer acquiring units in a chain whose parent company has seen its multiple cut 40% faces a different conversation with their lender than they did six months earlier. The debt coverage math gets tighter. The exit multiple assumption has to come down. The hold period may need to extend.

For operators considering franchise investment or unit acquisition, the signal from February 2026 is to stress-test the underlying unit economics rather than the brand narrative. What is the cash-on-cash return at the unit level under a realistic same-store sales scenario, not the bull case? Can the concept sustain traffic without the tailwind of novelty? Those questions matter more now than they did when capital was cheap and multiples were expanding.

On the brand side, the pressure is on companies to demonstrate operational credibility, not just growth rates. McDonald's beating estimates by 2.6% on $7 billion in revenue gets rewarded. CAVA posting 28% revenue growth gets sold. The market has inverted its usual preference, at least temporarily, in favor of precision over scale of ambition.

How to Read the Remainder of 2026

The February selloff is not necessarily a prolonged bear market for restaurant stocks. It is a recalibration. Several dynamics will determine where things settle.

Consumer spending is the primary variable. Restaurant traffic has been under pressure as food-away-from-home inflation has stayed elevated relative to grocery prices. If the consumer spending pullback that showed up in Q4 2025 and Q1 2026 deepens, same-store sales at growth concepts will face headwinds that make premium multiples even harder to justify. If it stabilizes, the narrative around brands like CAVA and Wingstop gets easier to defend.

Execution consistency will sort winners from losers faster than brand positioning alone. The market's message in February was that it is watching every quarter now. A company that beats estimates for three consecutive quarters in this environment will recover premium valuation. One that keeps missing, even on thin margins, will see further compression.

For investors holding restaurant growth names, the relevant question is whether the repricing has already discounted a realistic deterioration scenario. Wingstop at $228 may or may not be pricing in a realistic bear case for its unit economics, depending on how aggressively same-store sales decelerate. The same analysis applies across the category.

For operators and franchisees, the investment environment has shifted toward a higher bar for underwriting new development or acquisition. Units need to pencil at lower entry multiples and higher cost-of-capital assumptions. The brands that hold unit economics through a softer traffic environment will attract capital. The ones that need ongoing same-store sales expansion to justify their franchise fee structure will face pressure from both operators and lenders.

The Broader Signal

The February 2026 selloff is best understood as a maturation event for the fast-casual sector, not a verdict on the category's long-run prospects.

The underlying consumer shift toward higher-quality quick service, away from traditional fast food, remains intact. CAVA's 28% revenue growth and 10.8% same-store sales increase show that the leading concepts are still capturing real share. Wingstop's unit count continues to grow. The businesses are not broken.

What is being corrected is the price paid for participation in those stories. McDonald's and Starbucks are being rewarded for proving their execution at scale. Fast-casual growth names are being asked to prove they can sustain their trajectories at reasonable cost structures before the market will restore the multiples it briefly awarded them in 2025.

That is a reasonable ask. It is also a tougher standard than the sector has faced in several years, and the companies that emerge from 2026 with credibility intact will be positioned for the next expansion in valuations. The ones that disappoint will find the market has a long memory for broken promises.