Is Now The Time To Look At Buying The Cheesecake Factory Incorporated (NASDAQ:CAKE)?
The Cheesecake Factory Incorporated (NASDAQ:CAKE), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the NASDAQGS. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Cheesecake Factory’s outlook and valuation to see if the opportunity still exists.
See our latest analysis for Cheesecake Factory
What's the opportunity in Cheesecake Factory?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 3.4% below my intrinsic value, which means if you buy Cheesecake Factory today, you’d be paying a fair price for it. And if you believe the company’s true value is $32.38, then there’s not much of an upside to gain from mispricing. 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.
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. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. In the upcoming year, Cheesecake Factory’s earnings are expected to increase by 85%, 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 its fair value. 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
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 its fair value. However, the positive outlook is encouraging for the company, 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.
So while earnings quality is important, it's equally important to consider the risks facing Cheesecake Factory at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Cheesecake Factory.
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.
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. 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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