The Cheesecake Factory: Better For My Wallet Than My Waist

I'm the first to admit I love cheesecake, probably a bit too much. (One blogger wrote to me and called me a chubette!). I really don't think you can get a much better slice than that at The Cheesecake Factory, Incorporated (CAKE). This chain of casual restaurants has 40 different types of cheesecake to choose from (unfortunately for my waistline), in addition to its menu of standard casual fare items like pizza, pasta and seafood. In fact, the food, including the salads, are so good that the cheesecake itself only accounts for 15% of its sales.

CAKE has hit on harder times of late, partly because the economy has taken a turn. When people's wallets are pinched, the first thing they tend to eliminate is eating out. In 2006, Cheesecake Factory sales dropped 1.1%. This was coupled with some management troubles. The Cheesecake Factory was one of many companies that was forced to correct problems involving the back-dating of stock-option grants.

But the continuing lines out the door -- and not just during peak eating hours -- at Cheesecake Factory tell me one thing: This is a winner of a restaurant and it will weather the sluggish economy. It shows great signs of growth, despite last year's dip in numbers. It has 123 restaurants in 32 states, but is only in 54 of the top 100 restaurant markets, so there are plenty of places into which it can expand. CAKE also has a new Asian food concept in development. Its financials look strong, too. I like the prospects of Cheesecake Factory as much as I like its cheesecake.

Type of stock: This chain of casual dining restaurants, with a special twist of focusing on cheesecake, shows signs of strong growth in the years to come. The lines out the door tell me that the customer will keep coming back for more.

Price target: I'm comfortable with a buy at its current price of $26.55. In the last 52 weeks, this has been as high as $35.67, and I think it can rise above that, maybe even up to $40 in the next year.

CAKE 1-yr chart

Comments

[borisb]

great topic. i had good vibes in recent days the $26s were appealing for new long positions. I was just wondering what you specifically feel might make the shares move up to potentially $40, something concrete would be appreciated.

[borisb]

also the square footage per site is 300% larger then ordinary , equating to 492-ish industry units, impling emergeing satuation issues sooner rather then later. otherwise looking for the positives to warrent the T $40.