Is It Time To Consider Buying The Cheesecake Factory Incorporated (NASDAQ:CAKE)?

While The Cheesecake Factory Incorporated (NASDAQ:CAKE) might not have the largest market cap around , it saw a decent share price growth of 13% on the NASDAQGS over the last few months. The recent jump in the share price has meant that the company is trading around its 52-week high. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today we will analyse the most recent data on Cheesecake Factory’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Cheesecake Factory

What Is Cheesecake Factory Worth?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 18.02x is currently trading slightly below its industry peers’ ratio of 19.14x, which means if you buy Cheesecake Factory today, you’d be paying a decent price for it. And if you believe Cheesecake Factory should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Cheesecake Factory’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Cheesecake Factory generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 41% over the next year, the near-term future seems bright for Cheesecake Factory. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? CAKE’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at CAKE? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on CAKE, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for CAKE, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Cheesecake Factory as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 3 warning signs for Cheesecake Factory and you'll want to know about these.

If you are no longer interested in Cheesecake Factory, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.