The Bull Rankings scorecard — our quality-growth score is 51.2 / 100, built from three pillars scored 0–100: Quality 82, Growth 82, Value 20 (valuation is judged against sector peers). At today's price, our reverse-DCF read says the market is implicitly betting on free-cash-flow growth of about 14% a year next year, fading to 3% a year by year ten — a gauge of how much optimism is already in the stock.
The thesis
Texas Roadhouse’s current price is a premium for a restaurant that still delivers high returns on capital and a robust profit margin. The Bull Rankings model gives it a 51.2/100 quality‑growth score, with Quality 82 eclipsing Value 20. That imbalance tells us the market is already pricing in a strong moat, but still sees room for upside if the company can keep its earnings growth above the 9.9 % revenue pace reported for the trailing twelve months. The reverse‑DCF shows the stock implies a free‑cash‑flow growth of 14 % in year 1, tapering to 3 % by year 10— a trajectory somewhat above the 9.9 % revenue growth, close enough that our model reads the two as roughly in line: the market expects growth to hold near today’s pace.
What the business actually is
Texas Roadhouse operates casual‑dining venues under its flagship Texas Roadhouse brand, plus Bubba’s 33 and Jaggers. The menu centers on seasoned and aged steaks, ribs, seafood, chicken, pork chops, pulled pork, and vegetable plates, complemented by hamburgers, salads, sandwiches, pizza, wings, and appetizers. The company also franchises restaurants under the same brands, expanding its footprint beyond its core U.S. market. The flagship Texas Roadhouse brand drives the vast majority of revenue, while Bubba’s 33 and Jaggers are smaller growth concepts.
Why it can (or can't) keep compounding
The durability of Texas Roadhouse’s earnings hinges on three pillars. First, the profit margin of 6.8 % is higher than many peers, reflecting disciplined cost control and a menu that balances high‑margin items with volume drivers. Second, the ROE of 27.1 % signals that the company is turning equity into profit efficiently, a hallmark of a mature, well‑managed business. Third, the dividend raise—a model signal—shows confidence in cash generation and a willingness to reward shareholders, reinforcing a sustainable capital allocation cycle. Competitors struggle to replicate the brand’s loyal customer base and the “family‑friendly” atmosphere that turns first‑time diners into repeat patrons. The combination of a strong brand, controlled operating costs, and a mostly company‑owned store base run by managing partners who share in profits makes rapid erosion by rivals unlikely.
The valuation question
At a P/E of 27.1 and a PEG of 1.8, the stock trades at a premium to the sector’s average, yet the reverse‑DCF implied growth of 14 % in year 1 is higher than the 9.9 % revenue growth reported for the trailing twelve months. The gap is small enough that our model reads the two as roughly in line, so the market is pricing in steady growth rather than a sharp acceleration. If the company can sustain the 14 % growth for the first few years before tapering to 3 % by year 10, the current price is justified. However, if revenue growth stalls below 9.9 %, the implied growth would be overly optimistic, and the stock would appear overvalued relative to its fundamentals.
The bear case
The weakest pillar in the Bull Rankings model is Value 20, underscoring that the stock is expensive compared to peers. Beef costs are a real risk, since high cattle prices have squeezed steakhouse margins, and a decline in the profit margin below 6.8 % would erode the company’s ability to generate free cash flow and could trigger a reassessment of the implied growth rate. If the debt‑to‑equity ratio rises above 0.69, the company’s leverage would increase, tightening margins and reducing flexibility. Such a scenario would confirm the bear case that the current premium is unwarranted.
What would change our mind
- Profit margin falling below 6.8 % would signal cost pressures or pricing power erosion, weakening the moat.
- Revenue growth slipping below 9.9 % YoY would undermine the reverse‑DCF’s 14 % first‑year growth assumption.
- Debt‑to‑equity climbing past 0.69 would raise capital costs and limit future expansion, prompting a re‑evaluation of the valuation.
If any of these thresholds are breached, the market would likely adjust the price downward, aligning it more closely with the company’s actual growth trajectory.