Texas Roadhouse has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 11.7% to $191.24 per share while the index has gained 11.9%.
Is TXRH a buy right now? 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 772 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 5.9% 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 9%.
3. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Texas Roadhouse’s margin expanded by 2.4 percentage points over the last year. This is encouraging because it gives the company more optionality. Texas Roadhouse’s free cash flow margin for the trailing 12 months was 6.7%.
Final Judgment
These are just a few reasons why we're bullish on Texas Roadhouse, but at $191.24 per share (or 31.7× forward EV-to-EBITDA), is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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