Jim Cramer Prefers Texas Roadhouse Over Chipotle for Restaurant Investment

Jim Cramer recommends Texas Roadhouse over Chipotle Mexican Grill, citing a 50-for-1 stock split and inconsistent performance. He believes Texas Roadhouse offers a regional and national story with potential for growth, while Chipotle's high meal prices and lack of consecutive good quarters make it less attractive.

Jim Cramer recently recommended Texas Roadhouse (TXRH) over Chipotle Mexican Grill (CMG), highlighting the former's 50-for-1 stock split and regional growth potential. This comparison offers investors insights into the financial health and growth prospects of both companies.

Texas Roadhouse (TXRH)

Texas Roadhouse, a casual dining restaurant chain, is currently trading at a share price of US$188. A recent valuation by Simply Wall St [1] suggests that the company is potentially overvalued, with a fair value estimate of US$141. The 2-stage free cash flow to equity model indicates that the current share price is 34% overvalued, while the analyst price target of US$191 is 35% higher than the fair value estimate. The company's financials show a debt-free balance sheet, consistent earnings growth, and dividends covered by earnings and cash flows. However, the dividend yield is relatively low compared to the top 25% of dividend payers in the hospitality market.

Chipotle Mexican Grill (CMG)

Chipotle Mexican Grill, a Mexican fast-casual chain, ended the recent trading session at US$54.82, with a -2.11% change from the preceding day's closing price. The company's stock has gained 11.47% over the past year, outpacing the Retail-Wholesale sector's gain of 2.13% and the S&P 500's gain of 3.97%. Analysts expect Chipotle Mexican Grill to post earnings of $0.32 per share for the upcoming quarter, marking a year-over-year decline of 5.88%. The company's Forward P/E ratio of 46.42 is higher than the industry average of 21.87, and its PEG ratio of 2.78 suggests that the stock may be overvalued. Chipotle Mexican Grill currently holds a Zacks Rank of #3 (Hold), indicating a neutral outlook on the stock's performance.

Conclusion

Jim Cramer's recommendation of Texas Roadhouse over Chipotle Mexican Grill is based on the former's stock split and regional growth potential. While Texas Roadhouse appears to be overvalued according to the DCF model, its financial health, consistent earnings growth, and debt-free balance sheet make it an attractive investment. Chipotle Mexican Grill, on the other hand, has seen inconsistent performance and higher valuation metrics, which may make it less attractive to investors. Ultimately, the choice between these two companies will depend on an investor's risk tolerance and growth expectations.

References

[1] https://simplywall.st/stocks/us/consumer-services/nasdaq-txrh/texas-roadhouse/news/is-texas-roadhouse-inc-nasdaqtxrh-worth-us188-based-on-its-i
[2] https://finance.yahoo.com/news/chipotle-mexican-grill-cmg-stock-215003438.html