Texas Roadhouse Plunges 6.65%—Is This the Bottom for the Restaurant Giant?

Summary
• Texas Roadhouse (TXRH) shares fell 5.6% after Q2 earnings missed expectations, with EBITDA and gross margins declining.
• Revenue grew 12.7% to $1.51 billion, but profitability pressures overshadowed the sales boost.
• Intraday price swung from $179.6 high to $170.18 low, with 3.08% turnover amplifying volatility.

Today’s sharp selloff in Texas Roadhouse reflects a market grappling with conflicting signals: robust revenue growth versus eroding margins. The stock’s 6.65% drop has drawn attention to its 52-week low of $148.73 and 15.1% discount to its November 2024 peak. With the restaurant sector testing value-driven strategies and inflationary headwinds persisting, investors are left to decipher whether this is a buying opportunity or a warning sign.

Earnings Miss and Margin Pressures Trigger Sharp Sell-Off
Texas Roadhouse’s 5.6% intraday decline stems from a Q2 earnings report that exposed profitability cracks despite record revenue. Earnings per share of $1.86 fell short of the $1.91 estimate, while adjusted EBITDA and gross profit margins contracted by 108 basis points and 1.1 percentage points, respectively. The company attributed margin compression to 7% beef inflation in Q3 and 5.4% labor cost growth. Analysts highlighted that while same-store sales rose 5.8%, the negative mix effect from declining alcohol sales and rising input costs has eroded margins. The market’s overreaction—amplified by the stock’s historically low volatility—suggests investors are pricing in prolonged margin pressures.

Restaurant Sector Mixed as Texas Roadhouse Trails Peers
The broader restaurant sector remains fragmented, with McDonald’s (MCD) down 0.95% as inflationary pressures and wage hikes weigh on margins. Meanwhile, competitors like Taco Bell test value menus ($3 or less) to offset cost increases, while Texas Roadhouse’s focus on premium offerings has left it vulnerable to input cost shocks. The sector’s average EBITDA margin contraction of 2-3% in Q2 underscores a shared challenge, but Texas Roadhouse’s 17.1% margin—below its 5-year average—has amplified its underperformance. As consumer spending shifts toward affordability, the stock’s 3.8% YTD decline highlights its struggle to balance growth and profitability.

Options Playbook: Capitalizing on Volatility with Put/Call Pairs
• MACD: -0.78 (bearish divergence), RSI: 51.6 (neutral), 200D MA: 182.47 (above current price)
• Bollinger Bands: Price at 172.7, below the middle band (185.1), signaling oversold territory.
• Key Levels: Support at 170.18 (intraday low), resistance at 185.01 (previous close).
• Leveraged ETF: N/A (data unavailable).

Top Options Contracts:
1. TXRH20250815P165 (Put):
• Strike: $165, Expiry: 2025-08-15, IV: 27.88%, Delta: -0.1179, Theta: -0.0135, Gamma: 0.0277, Turnover: 1,955.
• IV (Implied Volatility): High, indicating strong bearish sentiment.
• Delta (Moderate): Sensitive to price drops but not overly directional.
• Gamma (High): Amplifies gains if the stock breaks below $165.
• Payoff (5% Downside): $7.7 (max(0, 164.07 - 165)).
• Why It Stands Out: High liquidity and gamma make it ideal for a short-term bearish bet.

2. TXRH20250815C165 (Call):
• Strike: $165, Expiry: 2025-08-15, IV: 46.18%, Delta: 0.7694, Theta: -0.6458, Gamma: 0.0257, Turnover: 19,160.
• IV (Very High): Reflects volatility premium.
• Delta (High): Strong directional bias for a rebound.
• Theta (High): Time decay accelerates, favoring quick moves.
• Payoff (5% Downside): $0 (max(0, 164.07 - 165)).
• Why It Stands Out: High turnover and leverage (17.73%) make it a liquid, aggressive call for a bounce.

Trading Setup: A short-term straddle between the 165 put and call offers asymmetric risk/reward. If TXRH breaks below $170.18, the put gains gamma-driven momentum. A rebound above $185.01 could trigger a call rally, though theta decay limits upside. Aggressive bulls may consider the TXRH20250815C165 into a bounce above $175, while bears should monitor the 165 put for a breakdown below $165.

Backtest Texas Roadhouse Stock Performance
The backtest of TXRH's performance after a -7% intraday plunge shows favorable results, with the ETF experiencing a 3-day win rate of 54.95%, a 10-day win rate of 59.50%, and a 30-day win rate of 62.48%. These rates indicate that TXRH tends to recover and even surpass its pre-plunge levels in the short term, with the maximum return during the backtest period being 6.25% over 30 days.

Act Now: Position for a Volatility-Driven Rebound or Deterioration
Texas Roadhouse’s sharp selloff has created a high-volatility environment, with technicals and options data pointing to a pivotal week ahead. The stock’s 52-week range and 24.1 P/E ratio suggest it’s not fundamentally broken, but margin pressures and inflationary headwinds remain risks. Investors should watch the 170.18 support level and the 185.01 resistance. For directional bets, the TXRH20250815P165 put offers a high-gamma play on a breakdown, while the TXRH20250815C165 call could capitalize on a rebound. Meanwhile, the sector leader McDonald’s (MCD) down 0.95% highlights shared challenges. Action Step: If $170.18 breaks, consider the 165 put for a short-term bearish trade; if the stock stabilizes above $175, the 165 call could offer leverage on a rebound.