Is Texas Roadhouse (NASDAQ:TXRH) Overvalued? A Deep Dive into Market Price, DCF, and Analyst Forecasts

The stock market often rewards optimism, but when reality collides with inflated expectations, value gaps emerge. Texas Roadhouse (NASDAQ:TXRH) is a prime example. With its shares trading at $193.53 as of June 19, 2025, the question arises: Does this price reflect the chain's intrinsic worth, or has investor enthusiasm pushed it into overvalued territory? To answer this, we must scrutinize three critical pillars—market price, discounted cash flow (DCF) valuation, and analyst forecasts—to uncover the truth.

Market Price vs. DCF: A 31% Disconnect

The starting point is the DCF valuation, a cornerstone of intrinsic value analysis. As of July 2025, Texas Roadhouse's DCF-derived value stands at $130.73 per share, implying the stock is 31% overvalued compared to its current market price. This stark discrepancy arises from two key assumptions:

1. Growth Rates: The DCF model assumes 22.9% annual revenue growth through 2029, declining from earlier years. However, this pace may be unsustainable given Texas Roadhouse's reliance on new store openings (30 in 2025 alone) and margin pressures from rising labor and supply costs.
2. Discount Rate: The model uses a discount rate of ~7.8%, which factors in risks like inflation and operational volatility. A higher rate—say, 10%—would further compress the DCF value, widening the overvaluation gap.

Meanwhile, the GuruFocus “fair price range” for TXRH spans a striking $49.30 to $39,753, with a midpoint of $93.34. While this range reflects extreme sensitivity to input variables, it underscores the fragility of bullish assumptions.

Analyst Forecasts: Caution Amid Growth

Analysts offer a mixed verdict. Consensus estimates for fiscal 2025 project $6.69 in EPS and $5.85 billion in revenue, representing 3.4% and 8.95% growth, respectively. However, the average price target of $188.36 lags behind the current price, with targets ranging from $139.20 (Stifel) to $220.00 (Morgan Stanley).

• Bullish Case: Morgan Stanley and Truist highlight Texas Roadhouse's strong customer retention and Bubba's Chicken Fry brand expansion, which could drive traffic and margins.
• Bearish Concerns: Stifel and Benchmark cite margin pressures (first-quarter 2025 EPS missed estimates due to rising costs) and leadership changes, including the CFO's departure, as risks.

Why the Discrepancy?

The market's premium reflects several factors:
1. Optimism on Expansion: Texas Roadhouse's aggressive store openings and Bubba's rollout may be priced in, even if execution risks remain.
2. Brand Resilience: The chain's consistent comparable sales growth (3.5% in Q1 2025) and dividend stability (1.44% yield) signal reliability in a volatile sector.
3. DCF Limitations: The model's reliance on long-term growth (3.5% terminal rate) may understate the brand's ability to adapt to trends like casual dining's rebound post-pandemic.

Investment Implications

For investors, the choice hinges on time horizon and risk tolerance:
- Short-Term Traders: Avoid buying at current levels. The 31% overvaluation suggests downward pressure unless growth accelerates beyond DCF assumptions.
- Long-Term Holders: Consider a position if you believe Texas Roadhouse can sustain its expansion and margin recovery. Monitor Q2 2025 results closely for clues.
- Value Investors: Wait for a pullback to $160–$170, closer to the lower end of analyst targets, to reduce downside risk.

Final Take

Texas Roadhouse's stock is undeniably priced for perfection. While its brand strength and growth plans justify some premium, the current valuation leaves little room for error. Investors should proceed with caution: The gap between hope and reality here is vast.

In conclusion, Texas Roadhouse is likely overvalued at $193.53, but its story isn't entirely sunk. Keep an eye on margin trends and execution on new store openings—their success could tip the scales back toward fair value. For now, tread carefully.