Does the Recent 6.8% Drop Make Texas Roadhouse Stock a Bargain in 2025?

• Wondering if Texas Roadhouse is a great bargain or overpriced right now? If you’re looking for insight into its true worth, you're in the right place.
• After a strong run over the past five years with a 146.1% gain, the share price has cooled with a 6.8% dip this week and sits down 9.7% year-to-date.
• Recent attention has zoomed in on the restaurant sector as consumers adapt their spending, and Texas Roadhouse has stayed in the spotlight thanks to its steady foot traffic and expansion plans. Industry chatter about changing dining trends and heightened competition may explain some of the latest volatility.
• On our valuation checks, Texas Roadhouse scores 4 out of 6, suggesting more to the story than headline numbers reveal. Let's break down what this means using standard valuation methods and highlight an approach to making sense of its price at the end of this analysis.

Find out why Texas Roadhouse's -11.5% return over the last year is lagging behind its peers.

Approach 1: Texas Roadhouse Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates what a company is worth today by projecting its future cash flows and discounting them back to the present value. For Texas Roadhouse, the analysis started with a current Free Cash Flow of $360 million and built forward using a combination of analyst forecasts and extended projections. Over the next several years, those cash flows are expected to grow, reaching $602.8 million by 2028.

After the first five years, where analyst input is available, future cash flow projections through 2035 are constructed by extrapolating historical growth rates and trends. This results in an estimated Free Cash Flow of just over $1 billion in 2035. All projections are in US dollars, maintaining consistency with reported financial data.

Using this model, the intrinsic value for Texas Roadhouse lands at $209.23 per share. Compared to where the stock currently trades, this represents a 21.8% discount, strongly suggesting that shares are undervalued right now.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Texas Roadhouse is undervalued by 21.8%. Track this in your watchlist or portfolio, or discover 832 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Texas Roadhouse.

Approach 2: Texas Roadhouse Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely recognized valuation tool for profitable companies like Texas Roadhouse. It helps investors understand how much they are paying for each dollar of a company's earnings, which makes it especially useful for steady, established businesses in the hospitality sector.

What counts as a fair PE ratio is influenced by a company's growth prospects and risk profile. Higher expected earnings growth or lower risk often justify a higher PE multiple, while slower growth or greater risk tend to pull the ratio down.

Currently, Texas Roadhouse trades at a PE of 24.8x. This is slightly above the hospitality industry average of 23.3x, but significantly below the peer average of 47.6x. However, just comparing to industry or peer benchmarks can miss company-specific nuances.

This is where Simply Wall St's "Fair Ratio" comes in. For Texas Roadhouse, the fair PE ratio is calculated as 23.6x. This specifically factors in the company's earnings growth, profit margins, risk factors, size and other industry considerations. This tailored approach offers a much clearer view of what the stock should be worth, rather than relying solely on market averages that may not match Texas Roadhouse's unique profile.

Comparing the actual PE of 24.8x to the fair ratio of 23.6x shows only a minor difference. This suggests the stock's current valuation is well aligned with its prospects.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Texas Roadhouse Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your perspective—a story behind the numbers—about what makes a company like Texas Roadhouse unique and where you see it heading. Narratives tie together everything that matters: your expectations of future sales, earnings, margins and a fair value, all backed by tangible business catalysts or risks.

Unlike old-school ratios or headline price targets, Narratives make it easy for anyone to connect a company’s real-world qualities and their own insights to a financial forecast and a price they believe is fair. This way of investing is accessible on Simply Wall St's Community page, used by millions of investors to map out their views and act on them.

With Narratives, you can quickly compare your fair value to the current market price, helping you decide at a glance when to buy, hold, or sell. They also keep you up-to-date, automatically adjusting as soon as new information such as earnings releases or big news hits the market, so your view always stays relevant.

For example, some investors see Texas Roadhouse accelerating growth and margin expansion from new brands and digital upgrades, justifying a fair value as high as $227. Others highlight sustained cost challenges that could limit earnings, landing at just $170. In both cases, their Narrative simplifies what used to be a complex, time-consuming analysis.

Do you think there's more to the story for Texas Roadhouse? Head over to our Community to see what others are saying!

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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