I am tired of all the gloom and doom that most analysts are reporting on the casual dining sector. There are a few standouts with valuations absurdly low and ready for the taking.
Over the past 10 years the casual dining segment has mushroomed and it is now experiencing a natural pullback. A number of chains have had uncontrolled growth including Ruby Tuesday, TGI Fridays, Macaroni Grill, Lone Star Steakhouse and Applebees and stock prices have suffered and some chains have sold to private equity.
There are a few oversold chains that any savvy investor should include in their portfolio.
-The Cheesecake Factory (CAKE) is the premiere casual dining establishment and a barometer for the casual dining industry. Although growth was scaled back a bit to increase cash flow late last year, this 138 chain company has a great future. The namesake has a niche that is unmatched and still has 2 hour waits on any given Friday or Saturday night. The new concept (Grand Lux Café) has yoy same store sales growth at its 12 locations and expansion is planned for 2008.
-Texas Roadhouse (TXRH) is another winner with an uncanny ability to control costs, and provide a reasonably priced menu (cheaper than its peers). This chain is growing while older steakhouse chains like Lone Star and Outback are scaling back a bit after being digested by private equity firms. TXRH is down over 20% over the past 2 months.
-PF Chang’s (PFCB) is another standout although it has made a comeback, up 40% from its 52 week low. They have scaled back growth plans, especially with their Pei Wei concept. They have a niche market like Cheesecake and it’s a great long term investment as well.
Even with commodity price and labor cost increases, people will continue to eat out even if there actually is a recession. I would recommend at least one of these in your portfolio.
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