Over the last six months, Texas Roadhouse’s shares have sunk to $160, producing a disappointing 5.9% loss - a stark contrast to the S&P 500’s 16.8% gain. This might have investors contemplating their next move.
Following the drawdown, is now the time to buy TXRH? Find out in our full research report, it’s free.
Why Is Texas Roadhouse a Good Business?
With locations often featuring Western-inspired decor, Texas Roadhouse (NASDAQ: TXRH) is an American restaurant chain specializing in Southern-style cuisine and steaks.
1. Restaurant Growth Signals an Offensive Strategy
The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.
Texas Roadhouse sported 797 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 6.1% annual growth, among the fastest in the restaurant sector.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
2. Surging Same-Store Sales Show Increasing 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).
Texas Roadhouse has been one of the most successful restaurant chains over the last two years thanks to skyrocketing demand within its existing dining locations. On average, the company has posted exceptional year-on-year same-store sales growth of 7.5%.
3. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Texas Roadhouse’s five-year average ROIC was 20.7%, placing it among the best restaurant companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
Final Judgment
These are just a few reasons why we think Texas Roadhouse is a high-quality business. After the recent drawdown, the stock trades at 22.3× forward P/E (or $160 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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