Cyclical stock: Texas Roadhouse, Inc.
You may have never heard of this company, but now you should, because not only is it operating all around the world but also, its stock is just great. Grab some dip and let’s go down.
Texas Roadhouse was founded in 1993 by a man named Kent Taylor who before used to be an employee in different kinds of restaurants, being eager to become a great chef some day. In 1990 this man started working in a local KFC and was doing quite well.
At that time, he became friends with the governor of Kentucky. The governor was generous enough to fund a new restaurant. Taylor wanted to start, but the man in power had quickly taken over the place and the young man had nowhere to go.
So, Taylor decided to look for investors in different places and finally he had found two people who were comfortable with his concept and interested in investing. Young man got 200,000 dollars from these people and was ready to start his dream venture.
The first Texas Roadhouse was opened in Indiana, a year after Taylor got backed up by his investors. People liked the food and the restaurant itself so the founder had soon started expanding to other states.
However, just because they couldn’t get the best people, and locations, the new restaurants in these other states had failed miserably. The food was also not the best. Taylor knew he had to take some real action to build trust and enjoyment for the visitors.
That could not be done without great leadership and management, building decorations and architecture and proper employee training. So, that was exactly what Taylor started taking care of. During that “optimization” process, a very skilled chef was hired by Taylor.
That chef had been micromanaging every single aspect of the food serving and had scaled up the standards upon which the business would operate. If it wasn’t for this great chef, Texas Roadhouse probably wouldn’t have reached the peaks it is at today.
The cooking techniques like those of the chef used were hardly ever seen by anyone. After this complete reorganization of the business,
Taylor started aggressively expanding to more and more states in the US and by the 2000s the company had a chain of nearly 70 restaurants across America.
However, that wasn’t enough for the founder, the restaurant chain had to be taken public 4 years later.
This action really shows how ambitions Taylor was with his goals. We often see fast food restaurants trading publicly like McDonald’s, Jack In The Box, Domino’s Pizza, Chipotle, Dunkin’, Papa John’s or Wendy’s, but a restaurants that are famous for their steaks – not so often.
Some people are shocked when they see that a western themed restaurant is being traded in the stock exchange.
And the company is trading in none other than NASDAQ Composite stock market index, which is widely known to be a leader in “hosting” technology stocks. 9 years ago as of today, the company had begun its massive expansion plan which started with the first international location in the United Arab Emirates, Dubai, to be more exact.
Today Texas Roadhouse has around 590 locations worldwide. 460 of them are located in the United States.
Let’s now discuss the TXRH stock and its financials.
The total revenue of the company in the first quarter of 2020 was around 690 million dollars, so one can expect the yearly revenue of this year to be around 2,7 billion dollars.
The diluted earnings per share mostly float above $0.2 after dropping down nearly 70% during the coronavirus pandemic. That, of course was due to this complete lockdown in nearly all Texas Roadhouse restaurants internationally.
Fun fact: 1 billion dollars are spent each year by the company only by purchasing meat.
The lockdown in March, 2020 had heavily impacted the company, especially its earnings per share. However, the board had to take some reasonable action and started delivering their steaks and other cuisine to people’s homes.
This had quite a good impact because the platform was well built, the company has terrific customer service and the delivery itself is fast.
One may ask, why someone would order remotely from Texas Roadhouse when there are more well-established and older food delivery services, especially for fast food?
The answer is really simple. It’s all about the food. One can’t get the legendary stake from anywhere else and people are just crazy about the buns this restaurant offers. Original, hand sliced meat, terrific vegetable mixes just stick to the heart of a customer.
People are so used to eating out at Texas Roadhouse that they would better order directly from their beloved restaurant than ask Uber Eats to bring something from McDonald’s.
Originality always wins, well, not that McDonald’s isn’t original but this remark is in regards to the legendary steaks.
So, the company is having lots of remote orders which it is not that used to. And also, it is rumored that the restaurant chain is losing money with the deliveries.
However, even if it is, more and more states are reducing the lockdown regulations which lead to opening up more restaurants and attracting people to just dine the way they are used to. And the stock…
Texas Roadhouse stock had fallen just like every other share in the market during the pandemic but it had recovered so quickly that it is reaching the same levels it was on before the pandemic.
The stock had had some struggles in the early 2000s, the global recession was also affecting it pretty badly. However, once the 2008 economic crisis ended, the company had started thriving like a king in the restaurant market.
Many small and large food servers had gone bankrupt during that time so clearly the amount of competition decreased substantially. Once the market started recovering, the company stock went no place else just up. Those who had invested in this company in 2009, held until 2020, would now be able to run away with 470% returns.
Not to mention, the stock had also been in trouble during the 2018 stock market correction and did not fully recover ever since. Only now, after the lockdown, the company is once again trying to reach or even beat the 2018 levels of nearly 70 dollars a share.
Which is a lot knowing that only 11 years ago the stock was trading at around 4 dollars a share. The market capitalization of Texas Roadhouse, as of today, is 4.57 billion dollars.
It is safe to say that each and every single restaurant of this company, despite the location is making 1.15 million dollars a quarter or 4.6 million dollars a year on average. Based on the 2020 first quarter numbers.
This calculation is derived from the fact that the number of operating restaurants worldwide is around 590 and the revenue of a single quarter is more or less 690 million dollars. Again, the quarter we picked to calculate this just happened to be the one when the coronavirus lockdown was taking place.
Texas Roadhouse is widely known for the line dancing by the employees that takes place nearly every hour. The whole Taylor’s concept, when founding the company, was to make it fun, loud and attractive.
So, most of the restaurants are really noisy but that’s what some amount of people really enjoy. Also, Texas Roadhouse is responsible for finding out whose birthday is today and doing the famous ritual which involves even more singing, dancing and plastic bull riding.
These restaurants are really something else, we might say.
What the restaurant chain is also known for is massively “upselling” the food. Doing stuff like giving away free buckets of peanuts absolutely charms people and lets them indulge in even more food ordering.
When someone is visiting Texas Roadhouse at the first time, they usually try to taste as many things as possible, the food is recommended everywhere you go, after all. Employees know exactly how to leverage situations like this, make more money for the company and get some of those hefty tips for themselves.
Not only do visitors of the restaurant cheer, but investors as well, as mentioned earlier. Lucky, smart and rich are the ones who saw something great in this company more than 10 years ago, they basically got their returns fivefold.
All that because the company is absolutely great. Without the originality, uniqueness and the food of angels, the restaurant chain would not be where it is today. Some may say that it does not make sense why the company is performing so well, being just a classic dining, restaurant chain. In the steak industry, it’s McDonald’s.
Texas Roadhouse had definitely earned the place on the pedestal on which it stands today. The whole culture of slicing meat by themselves, being natural, hardworking and fun day after day, really pays off.
The company was founded really recently compared to other large restaurant chain giants that are conquering the markets.
It makes one really happy to think about how can a western American cuisine restaurant can be trading on the Nasdaq Composite, and it seems like the trading is going pretty well.
This kind of culture empowers people. The food – even more. And it all started about 40 years ago when a waiter decided he wanted to build something great for the world. That waiter is now (still) a CEO of an internationally major restaurant chain.
That chain goes as far as China, Korea, India, UAE and even further. All that, better than anything, shows how a struggle can be overcome by having a large vision for the future and love for what you do. This terrific company could be regarded as “The Silk Road of Texas“.
Texas Roadhouse will keep its legendary reputation for decades, probably even ages and continue to serve the most amazing steaks on the planet, because it is already too late for somebody, even Corona to stop this company.