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About Texas Roadhouse
There’s no chance that I will ever forget about my first trip to Washington D.C.
A few years back I was living in Grand Forks, North Dakota and attending a local university and during my time at said university, I was a part of a political student organization (if you think I’m saying which party it was affiliated with, keep dreaming, I can’t afford to lose half of you) and outside of traveling around the state and visiting various town halls held by well known state government officials, our org’s executive team had some bigger goals in mind.
We had a few meetings and ultimately settled on an at the time farfetched trip to Washington D.C.
It was a grind but boy was it worth it.
We scraped up our collective earnings from cleaning up the university’s arena after hockey games, even putting some of our individual monies into the trip and also, my personal favorite, cleaning up tables and serving pizza at the Pizza Ranch. I don’t want to say it was all me or anything, but when I pulled up to the Pizza Ranch with my friends for the first time, the manager told us that for every customer that came in with our referral code, we would receive a certain percentage of their order, and I had the morally questionable idea of simply standing outside next to the door (so the manager wouldn’t have a super high chance of seeing me and my friends) and simply handing them to guests right before they walked in.
The commission was ultimately quite substantial, to say the least.
The manager and I had a brief chat after the first day, as I think my contributions to my political group were eating too much into the Pizza Ranch’s pizza pie margin, but we ended up having some laughs and surprisingly enough, he gave me permission to continue.
Thank you, manager from Pizza Ranch.
At any rate, after engaging in these activities for a couple of months, we had enough money saved up for our chapter to afford our round-trip airfare and the nearby Maryland Airbnb we would share with other local chapters going on the trip as well, the eve of the trip was upon us and I really do remember it like it was yesterday.
It was lightly snowing, each little crystalized snowflake winking at me as I walked from the parking lot back to my abode after classes (understand that during the time of the year I went on the trip, sunset in North Dakota occurred at like 4:30 PM, so, yeah), and I ended up getting a nice little pre-trip dinner from where else but my local neighborhood Texas Roadhouse, pounding down a New York Strip, baked potato and some corn in the process. I not only specifically remember this meal because it was so darn tasty and it was the day before my three in the morning takeoff time from Grand Forks to D.C., but I also distinctly remember it because I noticed a fellow university student next to me in the pickup line, whose keychain ornament read “UND Aerospace,” the University of North Dakota being one of the top aviation colleges in the world, accompanied with some Chinese characters dangling on a pad linked to the keychain as well.
I’ll admit, I was feeling a little giddy about this trip and with that, instantly felt the weird need to strike up a conversation with the gentleman.
Oh yeah, I guess I should mention that I did it with the very little conversational Mandarin that I picked up from foreign exchange students back in high school.
He was plenty amused, is what I’ll say.
So I guess you could say Texas Roadhouse holds some real estate in my memory bank for a few different reasons, as it was quite literally the catalyst for me writing this stock analysis article in the first place.
Following my fun little anecdote, it seems like just about the right time to learn more about this company’s stock (NASDAQ: TXRH) from an objective investment perspective, and whether or not this stock is worth, like its steak, sinking your teeth into.
TXRH’s stock financials
Headquartered in Louisville, Kentucky, Texas Roadhouse is an $11.61 billion enterprise with an associated stock price of $173.87 as well as a price-to-earnings (P/E) ratio of 31.30 and an annually issued dividend given to its shareholders in the amount of $2.44.
In considering these initial figures, it can be seen that Texas Roadhouse’s stock (NASDAQ: TXRH) is a bit pricey relative to its intrinsic, fair value at the moment given the commonly held price-to-earnings fair value benchmark of 20 rule, which in the realm of Texas Roadhouse makes some sense being that the company’s stock is up almost 50% over the last twelve months, which I think can largely be attributed to continued national restaurant unit growth along with comparable stores sales growth as well.
Texas Roadhouse’s business and stock have been performing very well in recent years, even though this is a company that tends to fly under the radar with respect to other restaurant operators, and I love that quality in a company.
A dividend of nearly ten quarters is hardly a negative also, hinting that this restaurant operator is pretty cash flow generative.
In digging deeper into this company’s books, it can be found that Texas Roadhouse’s seasoned executive team is at the wheel of just about $2.8 billion in terms of total assets along with approximately $1.6 billion in terms of total liabilities, according to the figures displayed on its balance sheet. With this in the eggshell, as a restaurant company, I actually quite favor this overall balance sheet breakdown, as Texas Roadhouse has enough assets socked away to allay any of my potential concerns surrounding this company currently being or in the near future becoming overly debt heavy, or overleveraged, which is seriously all too common within the waste intensive, cost imbued restaurant sector.
Nevertheless, this balance sheet gives this chain a seemingly sufficient amount of breathing room and more importantly, in my opinion, a lot of options in terms of continuing to consistently grow, whatever that might happen to look like for Texas Roadhouse.
Onto the state of the company’s income statement, Texas Roadhouse’s annual revenues stemming since 2019 have been growing at an impressive rate, at least in relation to what I had initially presumed the company’s annual revenues to have been. Specifically, TXRH’s revenues have grown pretty dang consistently, from a relative bottom of $2.4 billion, as reported in 2020 to a relative high of $4.6 billion, its most recently reported revenue figure shown in 2023, nearly doubling following what has so far been the worst of the Pandemic. It wouldn’t be much of a brash statement to make in saying that this was a pretty strong overall rebound and I also think that this growth can perhaps be attributed to the company leaning more into off-premise customer offerings, through the channels of online within their own systems and through third-party delivery platforms (i.e., Uber Eats).
With respect to the company’s cash flow statement, Texas Roadhouse’s total cash from operations during this exact same time period have been generally trending upwards as well, starting out at a base of $230 million (when else but 2020) and reaching a high of $565 million, as also reported during its latest reporting session in 2023, which just plain makes sense as its cash flows have been net commensurate with its previously outlined revenues in terms of pace and size.
Nevertheless, it is still fantastic to see that this company is growing the amount of cash it is carving out of its operations nearly each and every recent year, as cash is largely considered to be the lifeblood of restaurant operators, and yes, even the big chains like this one.
TXRH’s stock fundamentals
Peering forward, it can also be discovered on Charles Schwab’s brokerage platform that Texas Roadhouse’s net profit margin with respect to its restaurant category was basically in line with my initial expectations, standing at 7.14%, which, when briefly honing in on those of some its most direct competitors such as Darden and the parent company of Chili’s, Maggiano’s and It’s Just Wings by the name of Brinker International, is competitive and comparable with these competitors. For example, Darden’s net profit margin is shown as 9.05% whereas Brinker’s is 3.55%, with Texas Roadhouse hanging out somewhere in the middle, which makes sense given the type of food(s) it serves, its customer base and overall strategy, again, particularly when including the context of these competitors.
Should you buy TXRH stock?
Barring my fond memory from my former local Texas Roadhouse, this is a restaurant operator that is incredibly focused and efficient with its capital, which is hardly a small feat in any sort of context within the scope of the restaurant or slightly more formal dining categories.
You also need to add into the mix the fact that Texas Roadhouse’s relative margins have shown signs of strength and resiliency, its recently growing cash flows and its more than solid revenue growth, not to mention its well equipped balance sheet and strong brand awareness among the masses (primarily within the United States, that is).
There is a ton to like about Texas Roadhouse moving forward.
Nevertheless, I personally think there will be a better buying opportunity in the not-too-distant future as consumers continue tightening their discretionary spending and who is anyone kidding when they say that inflationary pressures are waning.
Come on now.
At any rate, given the company’s current valuation (primarily referencing its previously stated price-to-earnings ratio), before this company’s stock (NASDAQ: TXRH) dips down to more palatable and reasonable entry buy levels, I feel it makes the most sense to offer its stock a “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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