Cake in the Desert is Money in Your Pocket

Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I'd like to take a moment and share with you a company that is very overlooked in the restaurant industry.  The company is The Cheesecake Factory (NASDAQ: CAKE).  I believe they present a value buying opportunity. And if you get in now, you could benefit from the one big move they are making right now.

Let's bring you up to speed.

Net Income

Net Income has been growing for this company extremely well over the past 3 years.  To help you gauge how good the growth has been, I've included some companies that are known for their expansive growth in the chart below. YUM! Brands (NYSE: YUM) is known for their growth around the world, and most importantly their growth in China.  Chipotle Mexican Grill ) has been one of the greatest growth stories over the past decade. And Buffalo Wild Wings ) is heating things up with their impressive growth as well.

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CAKE Net Income TTM data by YCharts

All three of the companies mentioned are companies known for their explosive growth.  But yet when we look at the Cheesecake Factory's comparative net income growth, we see that the Cheescake Factory has actually grown their bottom line at a faster rate.

P/E Ratio

I was very impressed when I saw the net income growth.  But then I thought "that kind of growth can't possibly still be reasonably priced."  How wrong I was.

<table><tbody><tr><td><strong>Company</strong></td><td><strong>P/E Ratio</strong></td><td><strong>Forward P/E</strong></td></tr><tr><td>The Cheesecake Factory</td><td>17.03</td><td>15.34 </td></tr><tr><td><span><span>Chipotle</span></span> Mexican Grill</td><td>29.24 </td><td>23.73 </td></tr><tr><td>Buffalo Wild Wings</td><td>26.17 </td><td>20.81 </td></tr><tr><td>Yum! Brands</td><td>20.55 </td><td>18.77 </td></tr><tr><td><strong>McDonald's Corporation )</strong></td><td>16.33 </td><td>15.01 </td></tr></tbody></table>


When compared to its competitors, The Cheescake Factory is priced better than all but McDonald's.  It's not uncommon for a growth stock to be priced with a P/E ratio in the high 20s and even into the 30s.  With CAKE trading in the teens, I'm sure you'll agree it's a good value. 

With what we looked at we can see that business is booming and the stock still trades fairly cheap.  But what do we have to look forward to with The Cheesecake Factory?

International Growth

Business continues to grow in the United States.  They plan on opening 7 to 8 new locations this year (If that doesn't impress you, then maybe their $10 million in sales per location will...)  But here's the real exciting growth that I believe will position this company for expanding returns for years:  Now for the first time, the Cheesecake Factory is going global.  This is a requirement for any company in today's world economy.  The businesses that can look beyond our national boundaries are positioned the best. The company has just signed a deal to open 22 locations in the Middle East by 2016.

Don't think of the Middle East as a barren desert.  The first location is set to open in the city of Dubai.  Dubai has quickly become the playground of the rich and famous.  This region has really become a strategic move for companies looking to expand internationally.  CEO David Overton is excited because of the growth they will experience from this move.  It's fantastic for the growth of the business.  But this move also opens the door to other players like Russia and Turkey down the road.


The Cheesecake factory is priced well when considering their past growth.  But I'm excited because management is positioning The Cheesecake Factory to be able to grow for the long-term.  They are making decisions now that are going to pay off shareholders later.  To me, this is a screaming buy.

thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, and McDonald's. Motley Fool newsletter services recommend Buffalo Wild Wings, Chipotle Mexican Grill, McDonald's, and Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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