Texas Roadhouse trades at $180.22 per share and has stayed right on track with the overall market, gaining 5% over the last six months. At the same time, the S&P 500 has returned 6.6%.
Is TXRH a buy right now? Find out in our full research report, it’s free.
Why Does Texas Roadhouse Spark Debate?
With locations often featuring Western-inspired decor, Texas Roadhouse (NASDAQ: TXRH) is an American restaurant chain specializing in Southern-style cuisine and steaks.
Two Things to Like:
1. Restaurant Growth Signals an Offensive Strategy
A restaurant chain’s total number of dining locations often determines how much revenue it can generate.
Texas Roadhouse sported 816 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 5.7% annual growth, among the fastest in the restaurant sector.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
2. Surging Same-Store Sales Show Increasing Demand
Same-store sales show the change in sales at restaurants open for at least a year. This is a key performance indicator because it measures organic growth.
Texas Roadhouse has been one of the most successful restaurant chains over the last two years thanks to skyrocketing demand within its existing dining locations. On average, the company has posted exceptional year-on-year same-store sales growth of 6.7%.
One Reason to be Careful:
Low Gross Margin Reveals Weak Structural Profitability
Gross profit margins tell us how much money a restaurant gets to keep after paying for the direct costs of the meals it sells, like ingredients, and indicate its level of pricing power.
Texas Roadhouse has bad unit economics for a restaurant company, signaling it operates in a competitive market and has little room for error if demand unexpectedly falls. As you can see below, it averaged a 16.7% gross margin over the last two years. That means Texas Roadhouse paid its suppliers a lot of money ($83.26 for every $100 in revenue) to run its business. 
Final Judgment
Texas Roadhouse’s positive characteristics outweigh the negatives, but at $180.22 per share (or 29.1× forward P/E), is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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