After the market had a big pullback this week, Jim Cramer thought it would make sense to revisit one of the strongest and hottest groups of the year. Restaurant stocks have been roaring lately, thanks to a stronger job market and cheaper gas prices.
However, now that the momentum has slowed, Cramer took a step back to look at the restaurants that are in the best shape and the ones to avoid.
The best way to evaluate a restaurant is to look at the vital metric of same-store sales, also known as comparable-store sales. This data will tell you how well the core business is doing by pulling in the performance of stores that have been open for at least one year.
When Cramer looked at the numbers, he saw real strength in the restaurant group as there were more than 12 chains that reported at least 5 percent same-store growth in the most recent quarter.
But some of the companies with the best same-store sales turned out to be the weakest stocks. The worst reaction that the "Mad Money" host saw came from the burger chain Sonic, when it reported this week and tanked 12 percent the next day.
"After its latest pullback, though, I find Sonic a lot more approachable, and it's possible management was trying to be conservative with their guidance because they didn't want the expectations getting out of hand," Cramer said.
Three other restaurants that had bad reactions to terrific comps were Chipotle, Fiesta Restaurant Group and Popeyes Louisiana Kitchen.
Then there were companies that actually had their stocks go higher when they reported strong numbers. Those were Cracker Barrel and Zoe's Kitchen, as most investors just didn't expect the numbers to be so good.
Next up were the restaurants that had lousy reporting and uninspiring same-store sales growth in the past quarter.
Click here to watch the "Mad Money" video on restaurant losers
"With losers, or to be more diplomatic about it, underperformers, you need to do a lot more analysis to figure out what exactly is going wrong," Cramer added.
Sometimes it could be scary numbers that could signal that the company is in trouble, and sometimes a good company stumbles—which could create a great buying opportunity.
Cramer pulled together a group of restaurant stocks that he called the "don't touch" group. Those are the ones with such bad numbers he wouldn't touch them with a 10-foot pole.
First up was Noodles & Company, which doubled the first day of trading when it came public in 2013 but has been a total dog since with a report of 1.3 percent same-store sales growth.
Then there were the special circumstance stocks, where disappointing numbers didn't necessarily dictate the direction of the stock.
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Both McDonald's and Yum Brands had same-store sales decreases of about 1 percent last quarter. However, both companies are going through long-term changes that overshadow the results in the short term.
So after conducting his analysis of restaurant winners and losers from the last quarter, Cramer's takeaway was that investors can't just look at the numbers to determine the direction of a stock.
"You need to analyze the trend to see if a restaurant's comps are accelerating or decelerating, because that's what determines whether or not the stock goes higher."
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