Cheesecake Factory has been one of the best-performing restaurant stocks in a very difficult environment, outperforming the industry. In fact, the company has posted an incredible 27 consecutive quarters of comparable sales growth.
Year to date, the company's comparable-store sales are up 1.2% vs. the Knapp-Track restaurant comp index, which is down 0.9%. Because of the strong comp track record, Cheesecake Factory is able to leverage earnings growth. Over the last six years, the company has recorded a compounded annualized growth rate of 12%.
Because the average restaurant generates over $10 million in revenue, the company generates strong free cash flow. Year to date, Cheesecake Factory generated $165 million in free cash flow. The free cash allows the company to shrink its shares outstanding -- by 18% since 2010.
All this leads to a return on invested capital, or ROIC, of 16%, and a return on equity of 22.8%.
At a recent road show for the investment community, management guided to another year of solid performance. Cheesecake Factory expects to build between eight and nine new company-owned restaurants, license no more than five and generate earnings per share growth of 5% to 10%.
On Oct. 26, Cheesecake Factory reported third-quarter fiscal 2016 earnings of 70 cents per share, 9 cents better than the consensus estimate. Revenue rose 6.3% to $560 million, vs. the $557.78 million estimate. Comparable sales rose 1.7%. Restaurant level margins were 15.7%.
Management guided investors to anticipate 1% to 2% comp growth in 2017, which translates to earnings per share between $2.95 and $3.11 per share. Revenue should be up about 4.7% to $2.3 billion.
Considering the company's past performance, in my opinion, Cheesecake Factory deserves a premium valuation. But the stock is up 17% since it reported its third quarter. I would wait for a pullback to buy.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.