Texas Roadhouse Inc (TXRH stock): All You Need to Know

By Kirsteen Mackay

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Want to know is Texas Roadhouse a good stock to buy? Does TXRH stock offer a dividend and is the American steakhouse chain a value investment? Dive in...

In March, Texas Roadhouse Inc (NASDAQ: TXRH) stock featured in our Top Growth Stocks for Q2 2022 article. Read on for all you need to know about this casual dining restaurant chain.

What is Texas Roadhouse Inc?

Texas Roadhouse Inc (NASDAQ: TXRH) is a chain of American steakhouse restaurants specializing in steaks and cuisine cooked in a Texan and Southwestern style. These are seasoned and aged steaks hand-cut daily on the premises and cooked to order over open gas-fired grills.

Texas Roadhouse operates restaurants under the Texas Roadhouse and Aspen Creek names. Additional dishes include a selection of ribs, fish, seafood, chicken, pork chops, pulled pork and vegetable plates, and an assortment of hamburgers, salads, and sandwiches.

"Legendary Food, Legendary Service."

The company also provides supervisory and administrative services for other license and franchise restaurants.

Since 1993 the company has grown to 667 restaurants in 49 states and ten foreign countries. This includes 566 company restaurants and 101 franchise restaurants.

Texas Roadhouse was founded by W. Kent Taylor on February 17, 1993, and is headquartered in Louisville, KY.

Tragically, Kent Taylor died in March 2021, which the company acknowledged with deep sadness in its annual report.

Last year was also a very difficult time emotionally for our company as we dealt with the tragic loss of our founder, partner and friend, Kent Taylor on March 18, 2021. Throughout our 29-year history, we have faced many obstacles and short-term issues, but the unexpected loss of our founder shook us to our core.

Fun and Friendly Atmosphere

The company prides itself on creating a fun and comfortable atmosphere. Texas Roadhouse restaurants feature a rustic southwestern lodge decor accentuated with hand-painted murals, neon signs, southwestern prints, rugs, artifacts and jukeboxes, which continuously play upbeat country hits.

Does TXRH Stock Offer a Dividend?

TXRH stock currently comes with a 2.2% dividend yield.

Recovering from COVID-19

The company has been following its long-term strategy to benefit shareholders and grow its earnings per share (EPS) since it went public in 2005. Its core strategy includes expanding its restaurant base, improving restaurant profitability and leveraging its scalable infrastructure.

Indeed, Texas Roadhouse has significantly recovered from COVID-19 by improving sales and earnings and beating 2019 (pre-COVID) figures in 2021.

The company grew its revenue by 40% in Q4 2021, to $895.59m. And net profit rose by 171% to $53.06m Y/Y.

Continuing this trend, it grew revenue by 20.6% Y/Y in the first seven weeks of 2022.

Does Texas Roadhouse Buyback Stock?

Texas Roadhouse does initiate stock buybacks, meaning the company buys back some of its own stock. This reduces the number of shares in circulation and increases the value of the remaining shares. 

Share buybacks are popular and usually generate buzz and a bump in the share price.

The Texas Roadhouse board recently authorized a stock repurchase of up to $300m. Since 2008, the company has repurchased 18.3 million shares for $420.7m.

Inflation poses a threat

Commodity cost inflation and certain food and supply shortages pose an ongoing challenge to the business. This is likely to continue and is a risk shareholders should keep in mind.

Wage rates are also rising, which may affect future margins.

General inflation could mean consumers cannot afford to eat out, which also threatens the business's ongoing success.

Competition is Rising

The restaurant industry is a highly competitive arena, and the digital age compounds this.

While COVID-19 brought a sledgehammer to dining out, it simultaneously led to innovative ways to capitalize on alternative dining. This means competition now includes large restaurant chains, privately run eateries, meal kit delivery options, supermarket offerings, and a multitude of small businesses offering food deliveries.

Nevertheless, Texas Roadhouse recently teamed up with Ziosk, the tablet that allows guests to pay at the table. The restaurant chain will bring the Ziosk Cloud Commerce Platform to its Texas Roadhouse restaurants across the U.S. in a bid to keep customers happy by enhancing its digital offerings.

Financial Metrics and Overview

  • TXRH's price-to-earnings ratio (P/E) is 25, which is projected to fall to 21 in the next 12 months. It has been as high as 247 and as low as 10 in the past five years.

    A P/E of 25 does not indicate a value stock, but its year-over-year revenue growth of 44% in 2021 suggests it could be a great growth stock.

  • EV/EBITDA compares the total value of a business to its operating profits. EV stands for Enterprise Value which accounts for a company's market cap and debt minus cash. While EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization.

    Although EV/EBITDA values below 10 may appear healthy, this could also signify that the company is not performing well. 

    TXRH has an EV/EBITDA ratio of 13.1. This is well below its five-year high of 40 but much higher than the industry average of 0.8.

  • Diluted EPS rose from $0.45 in 2020 to $3.50 in 2021.

  • Restaurant operating costs, excluding depreciation and amortization, soared in 2021 to more than $2.8bn. That’s a jump from $2.1bn in 2020 and $2.25bn in 2019. This includes the cost of sales, labor, rent and other operating expenses.

  • TXRH stock improved its cashflows and lowered its total debt from $831m in 2020 to $744m in 2021. 

TXRH Share Price Performance

Over the past year, the Texas Roadhouse Inc (TXRH) share price has traded between $69.54 and $110.75. Today it sits around $83.73.

Over the past month, TXRH stock is up by 1.92%, while the S&P 500 is down -7.56% over the same period.

The Year Ahead

Texas Roadhouse plans to open around 25 Texas Roadhouse and Bubba's 33 restaurants this year. Its focus on continued expansion is a positive sign for growth investors.

Additionally, the company concentrates its efforts on improving customer satisfaction via food quality, enhanced digitalization, restaurant atmosphere, and high-quality service.

On the first day of this financial year, Texas Roadhouse completed the acquisition of seven franchise restaurants for an aggregate purchase price of approximately $27m. The company expects store week growth of roughly 6.5% in 2022, including this initial franchise purchase.

It is also growing its footprint abroad. As of December 28, 2021, the company franchised restaurants in ten foreign countries, including Bahrain, China, South Korea, Kuwait, Mexico, Philippines, Qatar, Saudi Arabia, Taiwan and the United Arab Emirates.

Texas Roadhouse will report its Q1 2022 earnings release on 5 May 2022 after market hours.

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Topics:
Restaurants
Food, Beverage and Tobacco
Industries:
Consumer Discretionary
Companies:
Texas Roadhouse

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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