Today, Cheesecake Factory Inc (CAKE, Financial) experienced a daily loss of 4.84%, yet it has gained 11.19% over the past three months. With an Earnings Per Share (EPS) of 2.18, the question arises: is Cheesecake Factory fairly valued at its current market price? This article dives into the intrinsic valuation of Cheesecake Factory, leveraging the GF Value to determine if the current stock price reflects the true worth of the company. Continue reading for a detailed analysis.
Company Overview
Cheesecake Factory Inc operates a distinguished chain of restaurants in the United States and Canada, with additional international locations through licensing agreements. The company is segmented into The Cheesecake Factory restaurants, North Italia, and other entities under the Fox Restaurants Concepts subsidiary. A significant portion of its revenue is generated from The Cheesecake Factory restaurants. With a market cap of $2 billion and a current stock price of $38.72, understanding how this aligns with its GF Value, which is set at $37.88, is crucial for investors.
Understanding GF Value
The GF Value is a proprietary measure calculated to represent the intrinsic value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and anticipated future business performance. If Cheesecake Factory's stock price significantly deviates from this GF Value, it could indicate that the stock is either overvalued or undervalued, affecting potential future returns. Currently, the GF Value suggests that Cheesecake Factory is fairly valued, implying that the stock price is expected to perform in line with the company's future business growth.
Financial Strength and Stability
Investing in companies with robust financial health is critical to avoiding potential capital loss. Cheesecake Factory's cash-to-debt ratio stands at 0.03, positioning it lower than 91.81% of its industry peers. This financial metric, along with a financial strength rating of 5 out of 10 from GuruFocus, indicates a fair balance sheet but warrants caution.
Profitability and Growth Prospects
Cheesecake Factory has maintained profitability over the last decade, with a recent annual revenue of $3.50 billion and an operating margin of 5.28%. This performance is relatively strong within the restaurant industry. Moreover, the company's 3-year average annual revenue growth rate is 15.8%, showcasing its capability to expand effectively. However, its EBITDA growth rate over the same period is 0%, highlighting areas where improvement is necessary for enhanced value creation.
ROIC vs. WACC
The comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) is crucial in assessing value creation. Cheesecake Factory's ROIC of 6.5% surpasses its WACC of 5.28%, indicating effective management and profitable investment returns.
Conclusion
Overall, Cheesecake Factory's stock appears to be fairly valued at its current price, reflecting its market performance and financial health. Investors should consider both the financial stability and growth prospects before making investment decisions. For a deeper insight into Cheesecake Factory's long-term financials, click here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
