Why The Cheesecake Factory Incorporated (NASDAQ:CAKE) Could Be Worth Watching

While The Cheesecake Factory Incorporated (NASDAQ:CAKE) might not have the largest market cap around , it saw a decent share price growth of 17% on the NASDAQGS over the last few months. While good news for shareholders, the company has traded much higher in the past year. 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? Let’s take a look at Cheesecake Factory’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See 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. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Cheesecake Factory’s ratio of 19.88x is trading in-line with its industry peers’ ratio, which means if you buy Cheesecake Factory today, you’d be paying a relatively sensible price for it. Is there another opportunity to buy low in the future? Since Cheesecake Factory’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Cheesecake Factory look like?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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 86% over the next couple of years, the 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? 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 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 optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for CAKE, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Cheesecake Factory at this point in time. While conducting our analysis, we found that Cheesecake Factory has 3 warning signs and it would be unwise to ignore them.

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.