If you have been associated with or following LakeView long enough, you would remember Scott’s popular Restaurant & Food strategy. Or perhaps you remember his CNBC interviews discussing McDonald’s (MCD). As a result of the pandemic, Scott felt it was in clients’ best interests to focus more on the general consumer rather than just food and restaurant stocks. However, we still have our eyes on the industry as it is an integral part of our Consumer Discretionary portfolio. Stocks like MCD and Chipotle Mexican Grill (CMG) have done well for our clients, but we have kept our eyes open for more opportunities.
There has been a general trend in the past few years in which 1) many food and restaurant chains have gone private; 2) some chains were forced to close or file for bankruptcy and reorganize, especially in the casual dining segment; and 3) the restaurant delivery services have changed how people dine. Add that to the rapid rise in inflation over the past three years; thus, we have had to look at the industry differently.
With a combination of a good balance sheet, an attractive moderately priced menu, quality management, and its growth potential, Texas Roadhouse (TXRH) caught our eyes. Founded in 1993 and based in Louisville, Kentucky, with more than 750 locations in 49 states and 10 foreign countries, Texas Roadhouse is known for its ribs, made-from-scratch sides, and fresh-baked bread. Is your mouth watering yet?
Having never been to a TXRH before, I took the opportunity to go to the local Texas Roadhouse in Henderson, NV with my brother, Steven (an expert in the hospitality sector) that recently opened. From the minute you step inside one of these restaurants you are immediately immersed in a culture like nothing else. This family-friendly restaurant far exceeded our expectations from friendly service to entertainment to none other than, fantastic food for an affordable price. The restaurant was packed, not an empty seat in the (road)house and this was midweek.
The affordability factor of TXRH is what is driving consumers during this high-cost, inflationary economic environment. Take for example a bone-in ribeye. At TXRH, a bone-in ribeye costs $1.60 per ounce. While it costs $2.11 per ounce at Outback Steakhouse. Their competitive pricing is not something to shy away from. However, the food is much more refined than say a fast-casual dining experience like CMG and has a more experiential full-service quality to it.
What do the financials say?
The company has a strong balance sheet, supported by its steady growth in earnings and revenue (except for during the pandemic). Their EPS is expected to grow 39% this year and an average of 26% per year over a two-year period, according to consensus analyst’s estimates. TXRH is trading at 26 times current year earnings and has a PEG ratio of 1.00. In laymen’s terms, the stock is relatively cheap and worth a good hard look.
A quality company is hard to come by these days and TXRH has a lot of redeeming qualities we like to see in a company with growth potential. To start, their community impact is notable. When we went for dinner on Tuesday night, unbeknownst to us, there was a “Tip a Cop” program and a Special Olympics fundraiser going on. Not only did this drive business, but TXRH gave back by donating 10% of our bill to the cause. We were highly impressed by the company’s generosity. Additionally, the company’s promise of corporate sustainability speaks volumes. From responsible energy use to less food waste, the company has its finger on the pulse of what is important to consumers these days. TXRH is a survivor of the casual dining industry shakeout and will continue to attract diners as prices rise across the industry and consumers seek more affordable, price-conscious alternatives to their favorites. As technology and consumers evolve, TXRH is ready to evolve with them. Keep your eyes out for a Texas Roadhouse, if there is not one near you now, there soon will be.
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Disclosure: At the time of this commentary Carly Rothbort, her family and/or clients of LakeView Asset Management, LLC were long MCD and TXRH - although positions can change at any time. The mention of stocks are not recommendations and may not be suitable investments for your individual situations.
Carly Rothbort is the Vice President at LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high-net-worth private wealth management. LVAM is a separate entity of Osaic Advisory Services, LLC, a registered investment advisor.
For more information on investing with LakeView Asset Management, LLC call us at 702-749-9343 or request more information by clicking on the contact button on the top right-hand corner of the website or by emailing Scott at scott@lakeviewasset.com or Carly at carly@lakeviewasset.com. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ.
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