You've got to hand it to Cheesecake Factory (NASDAQ:CAKE). It continues to make the best of a difficult situation. Consumers have more reasons than ever to avoid eating out, but Cheesecake Factory keeps coming up with new ideas to keep its customers coming back.

While third-quarter revenues were down about 1% from the year-ago quarter to $400.6 million, comparable-restaurant sales decreased 2.8%. That is an improvement over the past few quarters. But I was impressed with the company's net income of $16.3 million, or $0.27 per share. That was up from $11.8 million, or $0.19 per share, in the third quarter of last year.

Its revenues were helped by an expanded small-plates-and-snacks menu, a kids' menu, and a new cheesecake dessert. In addition, the company benefited from $8 million in cost savings in the third quarter. Cheesecake Factory is up to about $19 million in savings through the third quarter and is on track for savings of $22 million to $24 million for the full year. Despite the cost-cutting efforts, its restaurants have not sacrificed quality or service. Cheesecake Factory was recognized by Zagat as the "best value in full-service chain" during a recent survey.

While management gets high marks for operating its restaurants, the stock price is a different story. Of course, management isn't supposed to "operate" that. But giving guidance is fair. The company already prepared analysts for another year of meager top-line growth in 2010. Management's guidance for 2010 calls for comp-restaurant sales to be down 1% to 2% and the addition of three new restaurants. Based on its internal revenue forecast, the company expects to earn $1.00 to $1.10 per share in 2010. Cheesecake Factory shares are trading at about 17 times the high end of management's 2010 guidance. That's a premium price for only moderate growth and a far cry from last spring, when few were interested in owning the stock.

Take a look at how Cheesecake Factory fits in relative to its peers.


CAPS Rating (out of 5)

 Forward P/E

5-Year Estimated EPS Growth %


Buffalo Wild Wings (NASDAQ:BWLD)





California Pizza Kitchen (NASDAQ:CPKI)





Cheesecake Factory





Chipotle (NYSE:CMG)





DineEquity (NYSE:DIN)





Sources: Motley Fool CAPS and Yahoo! Finance.

Cheesecake Factory's forward P/E looks reasonable, but its P/E-to-growth ratio, or PEG ratio, looks high. While the PEG ratio is not foolproof, it gives us a little more insight than just comparing P/Es -- by showing how much investors are willing to pay for future growth. In the case of Cheesecake Factory, it seems that investors are paying more for its growth than that of its competitors. To me, that throws up a yellow flag.

Let's see how well management does with the rest of its cost-saving measures and how well those menu changes continue to play out before committing ourselves.

For more Foolishness:

Buffalo Wild Wings and Chipotle Mexican Grill are Motley Fool Hidden Gems picks. Chipotle Mexican Grill is also a Rule Breakers recommendation. The Fool owns shares of Chipotle Mexican Grill and Buffalo Wild Wings.

Fool contributor Rob Plaza does not own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.