Texas Roadhouse (NASDAQ: TXRH) and The Cheesecake Factory (NASDAQ:CAKE) are both mid-cap retail/wholesale companies, but which is the better investment? We will contrast the two companies based on the strength of their analyst recommendations, risk, institutional ownership, profitability, earnings, dividends and valuation.

Risk and Volatility

Texas Roadhouse has a beta of 0.54, suggesting that its stock price is 46% less volatile than the S&P 500. Comparatively, The Cheesecake Factory has a beta of 0.31, suggesting that its stock price is 69% less volatile than the S&P 500.

Earnings & Valuation

This table compares Texas Roadhouse and The Cheesecake Factory’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Texas Roadhouse $2.10 billion 1.67 $278.28 million $1.66 29.67
The Cheesecake Factory $2.30 billion 0.90 $283.81 million $2.85 15.72

The Cheesecake Factory has higher revenue and earnings than Texas Roadhouse. The Cheesecake Factory is trading at a lower price-to-earnings ratio than Texas Roadhouse, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Texas Roadhouse and The Cheesecake Factory’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Texas Roadhouse 5.63% 16.49% 10.94%
The Cheesecake Factory 6.10% 22.92% 11.11%

Dividends

Texas Roadhouse pays an annual dividend of $0.84 per share and has a dividend yield of 1.7%. The Cheesecake Factory pays an annual dividend of $0.96 per share and has a dividend yield of 2.1%. Texas Roadhouse pays out 50.6% of its earnings in the form of a dividend. The Cheesecake Factory pays out 33.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. The Cheesecake Factory is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Ratings

This is a breakdown of recent ratings and target prices for Texas Roadhouse and The Cheesecake Factory, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Texas Roadhouse 1 10 8 0 2.37
The Cheesecake Factory 1 12 5 0 2.22

Texas Roadhouse presently has a consensus price target of $49.78, indicating a potential upside of 1.07%. The Cheesecake Factory has a consensus price target of $54.59, indicating a potential upside of 21.85%. Given The Cheesecake Factory’s higher possible upside, analysts plainly believe The Cheesecake Factory is more favorable than Texas Roadhouse.

Insider & Institutional Ownership

88.9% of Texas Roadhouse shares are owned by institutional investors. Comparatively, 96.4% of The Cheesecake Factory shares are owned by institutional investors. 7.4% of Texas Roadhouse shares are owned by company insiders. Comparatively, 8.5% of The Cheesecake Factory shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Summary

The Cheesecake Factory beats Texas Roadhouse on 11 of the 16 factors compared between the two stocks.

About Texas Roadhouse

Texas Roadhouse, Inc. is a restaurant company, which operates in the casual dining segment. The Company offers an assortment of seasoned and aged steaks, all cooked over open grills and all but one hand cut daily on the premises. Its restaurants offer a range of menu items at prices that are designed to appeal to a range of consumer tastes. The Company also offers its guests a selection of ribs, fish, seafood, chicken, pork chops, pulled pork and vegetable plates, and an assortment of hamburgers, salads and sandwiches. The Company offers an assortment of wings, sandwiches, pizzas and burgers, including its bacon grind patty. In addition, the Company also offers its guests a selection of chicken, beef, fish and seafood. Other menu items include specialty appetizers, such as the Cactus Blossom and Rattlesnake Bites. As of December 27, 2016, the Company had 23 franchisees that operated 86 Texas Roadhouse restaurants in 23 states and six foreign countries.

About The Cheesecake Factory

The Cheesecake Factory Incorporated is engaged in the restaurant and bakery business. As of March 2, 2017, the Company operated 208 Company-owned restaurants: 194 under The Cheesecake Factory mark, 13 under the Grand Lux Cafe mark and one under the Rock Sugar Pan Asian Kitchen mark. The Company’s segments include The Cheesecake Factory restaurants, and other. It also operates bakery production facilities, which produce desserts for its restaurants, international licensees and third-party bakery customers. Its restaurants offer lunch and dinner, as well as Sunday brunch. Its restaurants also offer a bar. As of January 3, 2017, its menu consisted of over 200 items in addition to items presented on supplemental menus, such as its SkinnyLicious menu, which offers approximately 50 items. Its Grand Lux Cafe is a casual dining concept that offers artisan cuisine. It offers appetizers, seafood and steaks.

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