3 Reasons to Sell YUMC and 1 Stock to Buy Instead

3 Reasons to Sell YUMC and 1 Stock to Buy Instead

Jabin Bastian

Mon, February 16, 2026 at 1:04 PM GMT+9 3 min read

In this article:

YUMC

+3.30%

^GSPC

+0.05%

Yum China’s 23.5% return over the past six months has outpaced the S&P 500 by 17.6%, and its stock price has climbed to $54.95 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in Yum China, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Yum China Not Exciting?

We’re glad investors have benefited from the price increase, but we’re cautious about Yum China. Here are three reasons you should be careful with YUMC and a stock we’d rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Yum China’s 5.1% annualized revenue growth over the last six years was tepid. This was below our standard for the restaurant sector.

Yum China Quarterly Revenue

2. Flat Same-Store Sales Indicate Weak Demand

Same-store sales is an industry measure of whether revenue is growing at existing restaurants, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Yum China’s demand within its existing dining locations has barely increased over the last two years as its same-store sales were flat.

Yum China Same-Store Sales Growth

3. Low Gross Margin Reveals Weak Structural Profitability

Gross profit margins tell us how much money a restaurant gets to keep after paying for the direct costs of the meals it sells, like ingredients, and indicate its level of pricing power.

Yum China has bad unit economics for a restaurant company, signaling it operates in a competitive market and has little room for error if demand unexpectedly falls. As you can see below, it averaged a 18.6% gross margin over the last two years. That means Yum China paid its suppliers a lot of money ($81.38 for every $100 in revenue) to run its business.

Yum China Trailing 12-Month Gross Margin

Final Judgment

Yum China isn’t a terrible business, but it isn’t one of our picks. With its shares outperforming the market lately, the stock trades at 18.7× forward P/E (or $54.95 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.

Stocks We Like More Than Yum China

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.

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