Cheesecake Factory (CAKE): Examining Valuation After Strong Q3 Earnings Growth and Dividend Reaffirmation

Cheesecake Factory (CAKE) turned heads after releasing third quarter results, revealing higher sales and net income compared to last year. Investors are digging into the details to gauge if this momentum can continue.

See our latest analysis for Cheesecake Factory.

Cheesecake Factory’s third quarter didn’t just deliver stronger sales and net income; it also arrived alongside a fresh dividend affirmation and steady buyback activity. While the share price has slipped 18% over the last three months, investors who stuck it out for the past year saw a 29% total shareholder return. That kind of long-term momentum suggests the market is valuing both improved profitability and ongoing shareholder rewards.

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With shares trading below analysts’ price targets while having experienced a strong run-up over the past year, the key question now is whether the stock remains undervalued or if the market has already accounted for future growth.

Most Popular Narrative: 26.4% Undervalued

According to Zwfis, the narrative puts Cheesecake Factory’s fair value nearly $20 above where shares last closed, drawing attention from bargain hunters and growth optimists alike. The substantial gap brings focus to the company’s expansion strategy and potential for multi-brand, multi-decade returns.

This is one thing that I absolutely love about CAKE. Not only do they already have a large restaurant that is bringing in revenue for them, but they also have new concepts that are starting to spread nationally and are continually working to create even more for future growth. Especially from FRC, that is what one of the biggest benefits from that acquisition is, the fact that it is able to continue to test out new concepts and find something that sticks and then push it out nationally.

Read the complete narrative.

Want to know the bold math behind that high fair value? The secret sauce includes expansion plans, segment-by-segment sales projections, and margin targets most investors overlook. Which numbers are steering this narrative to its bullish conclusion? Click through and uncover the model’s most pivotal assumptions before you make your next move.

Result: Fair Value of $73.83 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, slower-than-expected consumer spending or challenges with new concept rollouts could limit the growth story that is driving today’s bullish outlook.

Find out about the key risks to this Cheesecake Factory narrative.

Another View: SWS DCF Model Puts a Lower Value on CAKE

Taking a step back from fair value estimates based on future earnings or multiples, the SWS DCF model tells a more conservative story. Our DCF approach places Cheesecake Factory’s value at $33.24 per share, which is well below its current price. Why is there such a big difference between methods? Could the market be pricing in more optimism than fundamentals justify?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Cheesecake Factory for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Cheesecake Factory Narrative

If you have your own take on CAKE’s outlook or want to dig into the numbers directly, you can build a personalized narrative in just a few minutes, so why not Do it your way

A great starting point for your Cheesecake Factory research is our analysis highlighting 4 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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