Does Cheesecake Factory (NASDAQ:CAKE) Deserve A Spot On Your Watchlist?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Cheesecake Factory (NASDAQ:CAKE). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Cheesecake Factory with the means to add long-term value to shareholders.

View our latest analysis for Cheesecake Factory

How Fast Is Cheesecake Factory Growing Its Earnings Per Share?

Cheesecake Factory has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Outstandingly, Cheesecake Factory's EPS shot from US$0.97 to US$2.09, over the last year. It's not often a company can achieve year-on-year growth of 116%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. Cheesecake Factory maintained stable EBIT margins over the last year, all while growing revenue 2.7% to US$3.5b. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Cheesecake Factory?

Are Cheesecake Factory Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Cheesecake Factory insiders have a significant amount of capital invested in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$146m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Should You Add Cheesecake Factory To Your Watchlist?

Cheesecake Factory's earnings have taken off in quite an impressive fashion. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So at the surface level, Cheesecake Factory is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Even so, be aware that Cheesecake Factory is showing 3 warning signs in our investment analysis , you should know about...

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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.