Next week, investors will focus on the prospects of one of the most popular restaurant IPOs offered during this record setting bull market. Texas Roadhouse (NASDAQ:TXRH) will be in the earnings spotlight on April 30.
Coming to the street in late 2005, TXRH brought more sizzle than the steak it serves. The stock stampeded 50% higher during its first six months of trading. However, the positive momentum died faster than a two-cow cattle drive. Since then, the stock has settled into a trading range from $10-$18.
However, with the start of the new year, the stock has seen an increase in investor interest. Trading volume has been rising along with the stock price. Currently, TXRH hovers above its 50 day and 200 day moving averages at $15 a share. It also was touted by several high profile investment gurus over the last three weeks. Mad Money's Jim Cramer and the Investor Business Daily have given this $1.1 billion steakhouse chain favorable play.
In early March, the company also added to the noise level by presenting at a Bank of America equity conference. From this presentation, I learned of several promising highlights involving the company's expected growth.
Currently, the company has approximately 251 stores. Compare that small number to its closest competitor Outback Steakhouse (OSI) which has nearly 800 restaurants and expansion appears imminent. Think about it. When most Americans think about steak, do they think about Texas or the land down under? Gimme a break... TXRH will grow.
Couple this opportunity of store expansion with the company's average sales growth per store rising steadily every year from $3.27 million in 2002 to nearly $4 million in 2006 and the investment picture becomes even more encouraging.
Finally, the real secret to the long term success of TXRH may very well be its business model. There is no restaurant that follows its business model as well as Texas Roadhouse. I know by experience that the restaurant ensures the atmosphere is casual and fun. The food is fresh and made from scratch. The pricing is aggressive and the service is definitely southern hospitality at its finest --- oh and don't forget the homemade bread. Yeehaa!
All fun aside, Wachovia Bank has published a note bracing investors for a potential hiccup in the upcoming TXRH quarter focusing on bad wintry weather. The stock also has a short interest of more than 14%. This could help to offset the overall positive analyst sentiment surrounding the stock. Currently, 8 out of 11 analysts love the stock.
Regardless of the earnings this week, I think the long term story for TXRH is positive. With the Outback Steakhouse selling for $3 billion in market cap, it would appear that TXRH will at some point double from its current price. It is my favorite restaurant idea.
Disclosure: Author is long TXRH
TXRH 1-yr chart