To The Moon

$Texas Roadhouse(TXRH)$

Texas Roadhouse Inc. (NASDAQ: TXRH) is currently trading at $183 per share. This stock appeal lies in its strong brand, customer loyalty, solid financial performance history, and significant growth opportunities both in the U.S. and internationally.

Today's I will analysis this stock valuation to determine is Texas Roadhouse a buy or wait for better entry. The evaluation will include the discounted free cash flow model, comparable company model, dividend discount model, and the Ben Graham formula for intrinsic value.

Stock Performance

Year-to-date, the stock is up approximately 50%, significantly outperforming the S&P 500, which is up about 25%. Over the past five years, TXRH has gained 223% compared to the S&P's 84%.

Financial Metrics

Current share price: $181Market cap: $12.1 billionP/E ratio: 31.16 (above the market average of 23.29)EPS: $5.82Beta: 0.98 (slightly less volatile than the market)Analyst target price: $196 per shareDividend yield: 1.33% ($2.41 annual dividend per share)

Fundamental Analysis

Revenue growth has been consistent, except for a decline in 2020 due to the pandemic. Five-year CAGR is approximately 13%. Net income reached an all-time high of $390 million, indicating strong profitability. Free cash flow is also at an all-time high of $270 million but is tied with prior peaks due to increased capital expenditures (CapEx). The company has engaged in modest share buybacks, rewarding shareholders.

Free Cash Flow

Free Cash Flow (FCF) is a crucial metric for evaluating a company's financial health and ability to generate cash after accounting for operating expenses and capital expenditures (CapEx). For Texas Roadhouse (TXRH), here’s a breakdown based on the information provided:

Recent Free Cash Flow Data:

• Trailing 12 Months (TTM): $270 million

• This represents an all-time high for TXRH, but it's tied with previous peaks due to rising CapEx, despite operating cash flow being at record levels.

• Dividends: TXRH pays out a dividend with a free cash flow payout ratio of 59%, which is sustainable given the company's FCF generation.

Valuation

While Texas Roadhouse has strong fundamentals, its current valuation suggests it is overvalued. Investors should exercise caution and consider whether the growth story justifies the premium price or wait for a more attractive entry point.

• Discounted Free Cash Flow Model:Revenue growth projections: 5.7–6.5 billion in coming years (13–14% growth). Estimated fair value: $137 per share (indicating overvaluation at current price).

• Dividend Discount Model:Dividend growth rate of 7% suggests a fair value of $86 per share.

• Ben Graham Formula for Intrinsic Value:Based on EPS and growth rates, intrinsic value ranges up to $240 per share if the company sustains 30% growth.At 12% growth, the stock appears overvalued.

Industry Comparisons:

Compared to competitors like Darden Restaurants and Cheesecake Factory, TXRH trades at higher Price-to-Sales and Price-to-Book ratios, signaling a premium valuation. Shake Shack, while trading at even higher multiples, highlights that TXRH is priced on the higher end among its peers.

High P/E Ratio: TXRH’s P/E ratio of 31.16 is above the market average (~23.29), indicating the stock is priced at a premium compared to broader market trends.

One of my favorite valuation methods is the comparable company model, which involves assessing stocks relative to similar companies in the same industry. For this analysis, I’ve selected a few competitors to Texas Roadhouse (TXRH).

• Darden Restaurants (DRI)

• Cheesecake Factory (CAKE)

• Shake Shack (SHAK)

Key Comparisons:

• Enterprise Value (EV): Texas Roadhouse ranks as the second-largest among these companies.

• Revenue: TXRH has the second-highest revenue, with the highest revenue growth rate of all competitors.

• Net Income & Profit Margins: It ranks second-highest in net income and profit margins, just behind Darden.

• Valuation Metrics:

  Price-to-Sales Ratio: All companies are below the market average of 3.1, but Texas Roadhouse is the highest among the group.Price-to-Book Ratio: TXRH is near the top, with the market average being 5.21.PEG Ratio (Price/Earnings Growth): While ideally this should be under 1, Texas Roadhouse has one of the lower ratios among its peers.EV/Revenue and EV/EBITDA: Texas Roadhouse appears reasonably valued in these categories.

Comparing with Shake Shack (SHAK), a fast-casual dining competitor, shows that Shake Shack trades at much higher multiples, which could indicate TXRH is a relatively better value. However, when compared to the broader group, TXRH appears slightly overvalued at its current price of $181 per share.

Summary of Valuation Models:

• Discounted Free Cash Flow Model: Indicates the stock is overvalued.

• Dividend Discount Model: Suggests it is fairly valued.

• Ben Graham Formula: Points to overvaluation unless the company achieves a growth rate of 30%.

While Texas Roadhouse has performed exceptionally well over the past year, its current valuation metrics suggest it may be overvalued relative to its peers.

Technical Analysis

Resistance Levels:

• $190–$195: This range aligns with analyst target prices and recent price rejections. A breakout above this could signal strong bullish momentum.

• $183: The current price level serves as a psychological barrier. A sustained move above this may test $190.

• $200: A round number and potential psychological resistance.

Support Levels:

• $175: A recent consolidation area where buyers previously stepped in.

• $165–$170: A historically significant support zone where TXRH has seen strong buying interest.

• $150: A deeper support level and a long-term price floor based on historical lows.

The current trading price of $182.05 is near the first resistance level of $183.44. A breakout above this level could signal further upward momentum. Conversely, a decline below the first support level of $180.92 may indicate a potential downward move.

Conclusion

Texas Roadhouse has shown strong historical performance and financial health, but based on current valuation models, the stock seems overvalued at its current price of $183. Investors should consider whether the company can sustain its growth rates to justify the valuation. Further detailed analysis is available through my Patreon, where you can access the full automated valuation spreadsheet for a deeper dive.

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