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Cheesecake Factory CAKE Stock Analysis – Satisfying your (profit) hunger

Cheesecake Factory CAKE Stock Analysis: Cheesecake Factory Inc. is a restaurant company and distributor of cheesecakes based in the United States. It doesn’t only operate for its 194 full-service restaurants, but also for 14 subsidiaries, two bakery production facilities, and other retailers and distributors.

The demand for restaurant services was and always will be high in almost every country on the globe. Especially when the restaurant’s reputation is significant and its products manage to get imprinted in clients’ minds not only for the taste but also for the style and trend. We all know the enormous effects the phenomenon of the mass can apply, regardless of industry, company, and subject. Cheesecake Factory possesses an important reputation in the market and definitely clients exit happy from Cheesecake Factory restaurants when they visit them.

Now, can the restaurant chain also satisfy your profit hunger? Let’s use IDDA for Cheesecake Factory CAKE stock to see if it can fit in your investment portfolio. Let’s start with the first IDDA point, the fundamentals.

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1- Fundamental Points: Cheesecake Factory CAKE Stock

Who are they?

The Cheesecake Factory was founded by Oscar and Evelyn Overton in Woodland Hills of Los Angeles in 1972. Between 1972 and the late 1980s the Cheesecake Factory had expanded and succeeded financially, comprising of 4 restaurants and providing fast-food, cheesecakes and short-order items to the clients. In the 1990s the founders decided to operate beyond Southern California and eventually came up operating more than 200 restaurants in over 36 states. As of now, there are restaurants located globally in areas such as Hong Kong, Mexico City, Dubai, and Shanghai.

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Cheesecake Factory’s CEO and Chairman, David Overton, has been serving the company in this role since 1992. David Gordon has been serving as a President of the company since 2013. Matthew Clark and Debby Zurzolo have been serving as CFO and Executive Vice President respectively.

The company already plans to expand its business to Argentina, Brazil, Colombia, Peru, Russia, Japan, Singapore, and Thailand. This clearly signals potential earnings growth and viability expansion.

 

Who are their competitors?

Cheesecake Factory possesses a unique position in the industry of casual dining services. Consequently, it is difficult to be compared with other companies.

 

However, we have included some of the most direct ones, starting with Starbucks (NASDAQ: SBUX), which possesses almost a total of $80bn of Market Cap and approximately $3bn of Net Income, Dunkin’ Donuts (NASDAQ: DNKN) and, interestingly, McDonald’s (NYSE: MCD).

 

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Capital points

Cheesecake Factory CAKE Stock
Price as of 10/31 $ 44.74
52 Wk Range $ 38.34 – $ 67.14
Shares Outstanding 45.23 million
Market Cap $ 2.03 billion
Beta -0.17
P/E (TTM) 15.68
P/B (MRQ) 3.23
Gross Profit $ 1,749,091
WACC 1.35%
Diluted EPS 2.86
Total Debt/Equity (MRQ) 16.33

 

The initial public offering of Cheesecake Factory CAKE stock took place in September 1992. Since then, and except for the global financial crisis period, it has been gaining ground and has an upwards sloped movement in general, with a record high of $64.14 price in April 2017. The company has a strong balance sheet and a minimal net debt position, which explains the really low cost of capital (WACC). It generates cash that adequately covers debt expenses, capital expenditures and dividend payments, so it can be considered really trustworthy and solvent company.

The fact that its net debt position is so low, makes the company attractive to buyers, since lower debt means lower default risk, meaning higher growth expectancy and profitability. One can say that CAKE is a growing stock if you see the Max charts since 1992. Today, as of 11/01/2017, the company is expected to report earnings after market close and the report will be for the fiscal quarter ending September 2017.

 

This brings us to the second point of the IDDA,  technical analysis.

2- Technical Points: Cheesecake Factory CAKE Stock Analysis

After reaching a record high price of $67.26 in May 2017, Cheesecake Factory CAKE stock price saw a massive pullback. By August 2017, it dropped all the way to the lower bad of the Ichimoku cloud, testing below $40. However, on the monthly Ichimoku Kynko Hyo setup, the cloud appeared to provide support.

After a hammer Doji candlestick formation in August, the market reversed to a strong bullish sentiment, creating a bullish engulfing.

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Cheesecake Factory CAKE Stock Technical Analysis - Monthly Timeframe  Cheesecake Factory CAKE Stock Technical Analysis – Monthly Timeframe

 

 

 

 

This is not the first time Cheesecake Factory CAKE stock price has behaved this way. After a long uptrend from 1997 to 2006, the share price saw a similar type of correction well into 2009. However, the stock was able to recover and conquer new highs by 2017. However, this doesn’t mean that we won’t see further drops in the medium term before the stock price picks up again.

 

Daily Time Frame: On the daily chart, we can see that the stock price is trapped inside the Ichimoku cloud. It was unable to break above it during its first round of correction in October. Ichimoku’s Kijun line has crossed below the Tenkan on the other hand. So although the future cloud appears to be bullish, we are seeing a short-term mixed signal for the Cheesecake Factory CAKE stock price.

 

Cheesecake Factory CAKE Stock Technical Analysis - Daily chart Cheesecake Factory CAKE Stock Technical Analysis – Daily Time frame

 

3- Market Sentiment

Four Wall Street analysts rate the Cheesecake Factory CAKE Stock with “Buy”. One rates it with “Sell” and eleven of them rate it with “Hold”. Moreover, Piper Jaffray maintained the stock with “Buy” rating in their latest report. Americans love eating out, so it is possible that revenues will be stable and profits will be generated in the upcoming years by Cheesecake Factory.

 

Casual dining demand derives from the fundamental human need for nutrition. Operating a business in such an industry increases demand, as long as the quality of the products and services provided meet and exceed the requirements. Consequently, if the company continues to operate at such a high level of quality and services, I would suggest company growth and market capitalization expansion in the short-term future.

 

Cheesecake Factory CAKE Stock Analysis – Investing Strategy

As the 4th point of the IDDA, you must calculate your risk tolerance before deciding on the investment strategy that is suitable for your portfolio. Join us for a free MasterClass to learn more.

 

For further help with your portfolio development, and if you want to chat with Kiana regarding your investments, join our investing group here. It’s so fun and you will learn a ton!

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Happy Hunting!

Anthony Pistikos

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