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In this commentary, I will examine Texas Roadhouse, Inc.'s (NASDAQ:TXRH) latest earnings update (26 March 2019) and compare these figures against its performance over the past couple of years, as well as how the rest of the hospitality industry performed. As an investor, I find it beneficial to assess TXRH’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
Did TXRH perform better than its track record and industry?
TXRH's trailing twelve-month earnings (from 26 March 2019) of US$154m has increased by 1.7% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 15%, indicating the rate at which TXRH is growing has slowed down. To understand what's happening, let’s take a look at what’s going on with margins and if the entire industry is feeling the heat.
In terms of returns from investment, Texas Roadhouse has fallen short of achieving a 20% return on equity (ROE), recording 16% instead. However, its return on assets (ROA) of 7.9% exceeds the US Hospitality industry of 6.1%, indicating Texas Roadhouse has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Texas Roadhouse’s debt level, has declined over the past 3 years from 19% to 12%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 9.1% to 53% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Texas Roadhouse to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TXRH’s future growth? Take a look at our free research report of analyst consensus for TXRH’s outlook.
- Financial Health: Are TXRH’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 26 March 2019. This may not be consistent with full year annual report figures.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.