Shares of restaurant operator The Cheesecake Factory (CAKE) are up over 8% so far in 2012. However, there are three reasons why CAKE can continue to rally.
CAKE data by YCharts
Short interest in CAKE currently stands at 8.06 million shares, or 16% of the float. This significant short interest represents the possibility for a squeeze higher as CAKE continues to rally. The high short interest should also serve to magnify any rally coming from positive news. Short sellers are likely already starting to feel pressure to cover. As some short sellers begin to cover, it will only cause more pain for other short sellers.
Decrease In Gas Prices
As shown by the chart below, gasoline prices have plunged in recent weeks. This is bullish for CAKE as consumers will have more spending money and thus be more likely to eat out.
RBOB Gasoline Futures Contract 1 (Daily) data by YCharts
CAKE is a domestic play as all of its restaurants are in the U.S. Importantly, the company does not have any operations in Europe This means that CAKE has little exposure to the problems in Europe. Investors looking for ways to invest without exposure to Europe should consider CAKE.
While CAKE is off to a good start so far in 2012, there are three reasons why the stock can continue to rally. The decrease in gas prices, high short interest, and lack of European exposure are all reasons why CAKE can continue to rally.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.