Is Texas Roadhouse Stock a Buy?
While promising data on the front of the coronavirus vaccine has pushed up the stock prices of casual catering companies in recent times, the pandemic has created a difficult operating environment for the industry. Of course, this includes Texas roadhouse (NASDAQ: TXRH).
However, the timing and distribution of a vaccine remains uncertain. In the meantime, cases are increasing in the United States and local authorities are reimposing some restrictions, including on dining establishments. As a result, Texas Roadhouse continues to face challenges.
However, all is not gloomy for the company. There are reasons why patient investors are likely to be rewarded for owning the stock.
Offering high quality cuisine at reasonable prices, Texas Roadhouse has struck a chord with restaurant enthusiasts. This is why it has shown increases in sales (comps) of the same restaurants in recent years, including 4.7% in 2019. Higher profitability has accompanied the increase in sales, with operating profit reaching $ 212 million, almost 50% more than in 2015.
While this past success is encouraging, the world has changed dramatically this year. Management’s adjustments to the current climate, however, should reassure investors.
After the coronavirus spread and became a major health problem, state and local governments took action to restrict people’s activity. As a result, at the end of March, Texas Roadhouse closed all of its restaurants to indoor dining, limiting customers to pickup and delivery.
However, the management has the merit of quickly adapting to this model and adding seats on the outside. In the second quarter, its lineup improved every month throughout the quarter, from 46.1% in April to 14.1% in June.
As governments ease restrictions, line-ups improved further in the third quarter. While they were down 6.3% over the period, compositions fell from minus 13% in July to just 0.5% in September. They moved into positive territory in October, up 0.8%. Lower quarterly sales impacted profitability, as Texas Roadhouse’s operating income fell 22% year-over-year to $ 35 million.
Yet while no one knows what the future may hold for them, it is impressive that Texas Roadhouse was able to adapt quickly and efficiently to conditions so that patrons clearly felt comfortable returning to restaurants once. that they had the opportunity.
By opening approximately 30 restaurants per year over the past few years, Texas Roadhouse has the opportunity to grow nationally and internationally. At the start of the year there were 611 locations, most of them in the United States, but it has also franchised international locations in recent years. Management planned to open at least 30 restaurants in 2020. Although COVID-19 has changed its plans, the company still plans to expand by 20 restaurants this year.
Texas Roadhouse has ramped up construction, with 18 restaurants in the works. It is scheduled to open this quarter and the first half of next year. Sales figures show that management is on the right track with its expansion plan.
While the virus could keep restrictions in place, the company got confused and customers found their way back to the Texas Roadhouse. It makes sense – reasonable prices and good food will always draw crowds. With the market far from being saturated, the company still has a lot of growth. It makes stocks a good place to park your money and fatten your wallet.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.