The past five years for Cheesecake Factory (NASDAQ:CAKE) investors have not been profitable

The Cheesecake Factory Incorporated (NASDAQ:CAKE) Shareholders should be happy to see the stock price rise 15% in the last quarter. But over the past half decade, the stock has not performed well. After all, the stock price is down 26% in that time, significantly underperforming the market.

With that in mind, it’s worth looking at whether the company’s underlying fundamentals have been the driver of long-term performance, or if there are some discrepancies.

Our analysis indicates that CAKE is potentially underrated!

There’s no denying that markets are sometimes efficient, but prices don’t always reflect underlying business performance. An imperfect but simple way to consider how market perception of a company has changed is to compare the change in earnings per share (EPS) to the movement of the stock price.

During the five years during which the stock price declined, Cheesecake Factory’s earnings per share (EPS) fell 19% each year. This drop in EPS is worse than the 6% compounded annual stock price drop. The relatively subdued stock price reaction could be because the market expects business to turn around.

The image below shows how EPS has tracked over time (if you click on the image you can see more details).

earnings per share growth
NasdaqGS:CAKE Earnings Per Share Growth Nov 25, 2022

We know Cheesecake Factory has improved its bottom line lately, but is it going to increase revenue? East free The report showing analyst earnings forecasts should help you determine if EPS growth can be sustained.

What about dividends?

It is important to take into account the total shareholder return, as well as the share price return, for any given stock. While the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital increase or spin-off. It’s fair to say that the TSR gives a more complete picture of dividend-paying stocks. As it happens, Cheesecake Factory’s TSR over the last 5 years was -19%, which is higher than the previously mentioned stock price performance. This is largely the result of your dividend payments!

a different perspective

While it hurts that the Cheesecake Factory posted a 10% loss over the last twelve months, the overall market was worse, posting a 19% loss. Given the total loss of 3% per year for five years, it appears that returns have deteriorated over the last twelve months. While some investors do well to specialize in buying companies that are struggling (but nonetheless undervalued), keep in mind that Buffett said that “turnarounds rarely change.” It is always interesting to track the performance of the stock price over the long term. But to better understand the Cheesecake Factory, we must consider many other factors. Even so, keep in mind that the Cheesecake Factory is showing 3 warning signs in our investment analysis you should know about…

of course Cheesecake Factory may not be the best stock to buy. So you might want to check this out free growth stock collection.

Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on US exchanges.

Valuation is complex, but we are helping to simplify it.

Find out if cheese cake factory is potentially overvalued or undervalued by consulting our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, internal transactions and financial health.

View the free analysis

This Simply Wall St article is general in nature. We provide feedback based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell any stock, and it does not take into account your goals or financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative material. Simply Wall St does not have a position in any of the mentioned stocks.

Leave a Reply

Your email address will not be published. Required fields are marked *