Texas Roadhouse, Inc. (NASDAQ:TXRH), might not be a large cap stock, but it saw a decent share price growth in the teens level on the NASDAQGS over the last few months. As a mid-cap 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 examine Texas Roadhouse’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What is Texas Roadhouse worth?
Texas Roadhouse appears to be overvalued by 27% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$98.10 on the market compared to my intrinsic value of $77.01. This means that the opportunity to buy Texas Roadhouse at a good price has disappeared! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Texas Roadhouse’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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 kind of growth will Texas Roadhouse generate?
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 more than double over the next couple of years, the future seems bright for Texas Roadhouse. 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 well and truly priced in TXRH’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe TXRH should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on TXRH for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for TXRH, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Texas Roadhouse has 3 warning signs and it would be unwise to ignore these.
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.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.