Is It Too Late 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 double-digit share price rise of over 10% in the past couple of months on the NASDAQGS. The recent share price gains has brought the company back closer to its yearly peak. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? 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?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. 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 16.71x is currently trading slightly below its industry peers’ ratio of 19.46x, 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.

Can we expect growth from Cheesecake Factory?

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. Cheesecake Factory's earnings over the next few years are expected to increase by 52%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in CAKE’s positive outlook, 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 conviction to buy should the price fluctuate 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 positive outlook 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.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. 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.