When Should You Buy Texas Roadhouse, Inc. (NASDAQ:TXRH)?

Texas Roadhouse, Inc. (NASDAQ:TXRH), is not the largest company out there, but it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$117 and falling to the lows of US$93.40. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Texas Roadhouse's current trading price of US$95.57 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Texas Roadhouse’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Texas Roadhouse

What's The Opportunity In Texas Roadhouse?

According to my 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, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Texas Roadhouse’s ratio of 21.93x is trading slightly above its industry peers’ ratio of 19.73x, which means if you buy Texas Roadhouse today, you’d be paying a relatively sensible price for it. And if you believe that Texas Roadhouse should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, it seems like Texas Roadhouse’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Texas Roadhouse 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. Texas Roadhouse's earnings over the next few years are expected to increase by 33%, 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 TXRH’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 financial strength of the company. Have these factors changed since the last time you looked at TXRH? 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 tabs on TXRH, 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 TXRH, 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.

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 1 warning sign for Texas Roadhouse and you'll want to know about this.

If you are no longer interested in Texas Roadhouse, 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.