Texas Roadhouse (NASDAQ:TXRH) is a popular chain of steakhouses with over 700 restaurants across multiple brands nationwide. For investors seeking opportunity in restaurant stocks, TXRH could be interesting to look at due to its strong financials in what has been a tough time for many restaurants.
Let’s examine TXRH to see if the steakhouse giant is a buy, sell or hold at current prices.
Texas Roadhouse Had a Great 12 Months
2024 was a surprisingly good year for Texas Roadhouse, especially considering the general softness of the restaurant market at the moment. For the full year, the company saw its comparable store sales rise 8.5% at its company stores and 7.4% at its franchise stores. As a result, full-year revenues rose nearly 16% from $4.63 billion in 2023 to $5.37 billion in 2024.
Earnings per diluted share followed a similar upward trajectory, rising from $4.54 a year ago to $6.47. Much of this increase came from an expansion of restaurant-level margins from 15.4% to 17.1%. The average guest check rose during the year, and Texas Roadhouse was able to increase the productivity of its labor force without compromising the guest experience. As a result, the company was able to largely bypass the problems associated with rising labor costs in the restaurant industry as a whole.
2024 also saw Texas Roadhouse bolster its cash stockpile to over $245 million from a starting point of just $104 million at the end of 2023. With no long-term debt on its balance sheet, this gives management an extremely strong financial foundation from which to drive future growth. The large reserve of cash could also help the company if and when the challenges facing the restaurant industry as a whole catch up to it.
Taken together, these results show strong performance at Texas Roadhouse in 2024. Unsurprisingly, shares of the company have advanced by almost 19% over the last 12 months in response to its ongoing business strength.
Does Texas Roadhouse Have More Growth Left in It?
In addition to strong trailing performance, Texas Roadhouse also has the potential to deliver solid growth going forward. The company opened 45 new locations in 2024, including 31 company-owned restaurants.
Add these new spots to positive growth in same-store sales in 2025 and Texas Roadhouse earnings are probably going to be on the rise for some time. Over the coming 5-year period, analysts expect to see TXRH’s EPS rise by about 11% annually.
In addition to growth in the top and bottom lines, share prices at Texas Roadhouse are supported by a persistent and pretty generous share buyback program. In 2024, the company repurchased nearly $80 million worth of its own shares. This was the latest in a trend of share buybacks that has gradually brought the number of outstanding shares down from a peak of 74 million in 2011 to about 67 million today.
Texas Roadhouse’s Dividend Growth Potential
Another positive aspect of TXRH is the stock’s potential to deliver both current dividend income and forward dividend growth. At the moment, shares of Texas Roadhouse pay $2.44 annually, resulting in a 1.37% yield. This is slightly above the 1.2% paid on average by stocks in the S&P 500.
However, Texas Roadhouse’s payout ratio is still under 40% and is sufficiently low to give the Board of Directors ample room to hike dividends down the road.
Texas Roadhouse has been increasing its dividends for four years, as the company was forced to reduce its payout in 2020 due to the effects of the COVID-19 pandemic. In the last three years, though, management has raised the dividend at the extremely rapid compounded annual growth rate of 26.7%.
Even accounting for the break in 2020, the 10-year annualized growth rate is still 15.1%. Given that Texas Roadhouse is likely to see more earnings growth going forward, these trends suggest that TXRH could be a good stock to hold for long-term dividend growth.
Is TXRH Fairly Valued?
Finally, we have to consider whether Texas Roadhouse is trading at an attractive value relative to the performance of its business. TXRH shares do trade at a modest premium, being priced at 27.5x earnings and 2.2 timesx.
Neither one of these metrics, however, seems particularly out of line given the strength of the underlying business and its potential for forward earnings growth.
This view also seems to be the prevailing one among analysts covering the stock. If TXRH rises from its current price of $177.90 to the average target price of $191.62 predicted by analysts, investors would see a 12-month return of 7.7%.
While far from a spectacular gain, this increase in share price paired with the income produced by the company’s dividend could leave shareholders with a respectable total rate of return.
So, Is Texas Roadhouse a Buy, a Sell or a Hold Now?
Texas Roadhouse stock is a Hold now given that the current share price is hovering close to analysts consensus target of $191.62 per share.
Some drawbacks for shareholders now include the fact that inflation in January was reported at 3.1%, a bit hotter than what economists had originally anticipated.
Persistent inflation could both raise the costs of doing business and put pressure on consumers. The most recent consumer confidence report showed that Americans are increasingly anxious about future economic conditions. These trends could weigh on Texas Roadhouse, but management has shown a talent for navigating difficult times and the business itself seems like a good bet for the long run.
Right now, TXRH appears to be a good stock to Hold for those already owning a stake. The combination of a strong business with good future growth prospects and a fair valuation could make Texas Roadhouse a good long-term compounding investment.
The potential for dividend growth is also quite appealing because investors are likely to see the company’s dividend rise considerably over the years to come. While Texas Roadhouse is unlikely to deliver sudden multi-bagger returns, it does seem to have the potential to grow steadily and reliably over long periods of time.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
