Shares of Texas Roadhouse (TXRH -0.74%) are down 6% over the past year, which is actually slightly better than the broader market. The stock is down mainly because of inflation in beef prices as well as concern that inflation may be taking a bite out of consumers' spending power, leading them to forgo expenses like eating out.

But Texas Roadhouse is a high-quality company that has returned over 80% over the past five years (and that includes a decline during the COVID pandemic, which shook the restaurant industry to its core) and over 400% over the past decade.

The short-term fickleness of the market could be a good time to add shares of this long-term winner to your portfolio. 

Happy waiter working at a restaurant.

Image source: Getty Images.

Affordable night out for a resurgent consumer 

While concern is certainly warranted, there is some reason to believe that the consumer may be stronger than generally perceived. Furthermore, consumer spending may be simply shifting from goods to experiences. For example, on its recent earnings call, American Express reported that card member spending was at record levels, "led by a vigorous rebound in travel and entertainment." Texas Roadhouse is in a prime position for a resurgence in travel and entertainment spending. 

Even if there is some belt-tightening going on, Texas Roadhouse still represents an attractive, affordable destination for a night out. The restaurants serve high-quality food at a reasonable price, with a per-guest average check size of $19.68, making it a viable option for enjoying a night out to a wide demographic of the population.

CEO Jerry Morgan says that the company is fully aware of the impact that inflation can have on discretionary spending but that "...history shows that during times like these, Texas Roadhouse's incredible value positions us to come through this period with increased guest satisfaction and a larger and more loyal following."

Despite the doom and gloom from prognosticators about the challenges facing the restaurant industry and the challenging economy, Texas Roadhouse keeps chugging along and recently hit over $1 billion in quarterly revenue for the first time. The company just reported second-quarter earnings, and it grew revenue by 14% year over year.

Texas Roadhouse also reported that comparable restaurant sales grew 7.6% at company-owned restaurants and 6.2% at domestic franchised restaurants. This quarter was smack-dab in the middle of the time frame where inflation was raging, and Texas Roadhouse looks like it has made it through without seeing any decrease in demand. 

Texas-sized growth  

The most exciting part about investing in this well-liked restaurant brand is that there is a lot of room for growth ahead. Like one of my other favorite stocks, Dutch Bros, Texas Roadhouse is growing its store count rapidly, but it still has a long way to go. There are 637 Texas Roadhouse locations across the United States and abroad (including both company-owned and franchised restaurants). 

The company also owns another concept called Bubba's 33, which it describes as "family dining meets garage bar." This chain currently has 37 locations. Then there's a new brand, Jaggers, which is more of a fast-casual concept that serves burgers, chicken sandwiches, shakes, and more. Jaggers has four locations with plans for two more later this year and an additional franchised Jaggers. The company is on track to open 25 total new locations between Texas Roadhouse and Bubba's 33 in 2022.

Bank of America Global Research analysts believe there is room for about 1,000 Texas Roadhouse locations in the U.S., about 70% higher than its current store count. The analysts also see 200 Bubba's 33 locations, which is more than six times its current store count, as a reasonable target.

If Texas Roadhouse keeps executing on its plans for growth and opening new locations of its brands on a profitable basis, the company's valuation should continue to climb.

A generous portion of shareholder returns

Shares of Texas Roadhouse are trading at a reasonable valuation of just under 19 times forward earnings. In addition, Texas Roadhouse also pays out a dividend, which yields 2.2%. Plus, the company has a massive $300 million share repurchase program in place and has bought back 2.7 million shares during just the first half of 2022.

This combination of dividends and share repurchases leads to a compelling combination of shareholder returns for Texas Roadhouse stock holders. With continued progress on its opportunity to grow its footprint, no signs of slowing demand due to inflation, and shareholder returns in the form of both dividends and share buybacks, Texas Roadhouse continues to look like a long-term winner for its investors.