Tuesday's IBD 50 Stocks To Watch pick, Texas Roadhouse, is above a recent buy point during the ongoing stock market correction. TXRH stock boasts a relative strength line at new highs, as the stock rose nearly 3% midday Tuesday.
Texas Roadhouse is actually headquartered in Kentucky, despite its name. Operating primarily in the casual dining segment, it has nearly 700 locations in 49 states and 10 foreign countries.
In the fourth quarter, Texas Roadhouse earnings rose 17% to 89 cents per share, as sales increased 13% to $1.1 billion. Earnings and sales both missed Wall Street's estimates. Meanwhile, the company raised its quarterly dividend to 55 cents per share, resulting in a 2.1% annual yield.
In 2022, the company opened 23 restaurants, lifting the total to 697. For 2023, it expects to open between 25 and 30 new restaurants.
"Turning to 2023, we have been impressed by the strength of the consumer. We are pleased to see our sales momentum carry over from 2022 into the beginning of this year. The demand to dine in restaurants has grown and we continue to hold onto a significant amount of our Roadhouse business," commented CEO Jerry Morgan in the earnings conference call.
He continued, "We also are encouraged by the potential for a slowing rate of inflation, even though the underlying cost for labor and commodities still remains escalated."
Texas Roadhouse's IBD Stock Ratings
This restaurant leader has an 84 out of a perfect 99 Earnings Per Share Rating, according to IBD Stock Checkup. The EPS Rating takes into account the growth and stability of earnings over the past three years, with the two most recent quarters weighted more heavily in the calculation.
Texas Roadhouse has a solid long-term earnings track record, with a stable 11% five-year growth rate and stellar 61% three-year rate. That positively impacts the EPS Rating. Looking forward, annual earnings are expected to grow 18% in 2023 and 17% in fiscal 2024, according to FactSet.
As for the SMR Rating — which looks at sales, profit margins and return on equity — Texas Roadhouse has an excellent "A" rating. In the latest year, it booked a mild 8% pretax margin, with a strong 26% return on equity. And over the last three quarters, Texas Roadhouse has grown sales by an average 14%.
Finally, TXRH stock boasts a 98 IBD Composite Rating. The IBD Composite Rating is designed to help investors easily measure the quality of a stock's fundamental and technical metrics.
Stocks To Watch: Texas Roadhouse Above Buy Point
Texas Roadhouse shares rallied 2.7% midday Tuesday, adding to Monday's gains when it rebounded from its key 50-day moving average. The stock is in buy range above a flat base's 101.85 entry, according to IBD MarketSmith chart analysis. The buy range goes up to 106.94. But keep in mind the market correction should keep investors on the sidelines.
Bullishly, the stock's relative strength line hit a new high this week, exhibiting big outperformance vs. the S&P 500. An RS line at new highs confirms that Texas Roadhouse is a top stock to watch in the ongoing market correction.
Other IBD 50 Stocks To Watch
These are three recent IBD 50 Stocks To Watch picks.
| Company | Symbol | Buy point | Type of base |
|---|---|---|---|
| HubSpot | 399.65 | Cup with handle | |
| Monolithic Power Systems | 530.75 | Cup with handle | |
| Toro | 117.76 | Flat base |
Source: IBD Data As Of March 14
Follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on top stocks to buy and watch and the stock market.
