Image source: Chuy's Holdings.

The restaurant business keeps investors on their toes, but Tex-Mex specialist Chuy's Holdings (CHUY -1.81%) has been on the upswing lately. Yet not everyone is convinced that the business will be able to produce enough growth to justify its current valuations. Coming into its fourth-quarter financial report on Tuesday, investors will be looking to see if the restaurant chain can keep up its pace of expansion to produce the impressive growth that they've seen in recent years. Let's take a closer look at what we're likely to hear from Chuy's and whether it will build up some momentum for 2016.

Stats on Chuy's Holdings

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$70.39 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Data source: Yahoo! Finance.

What's next for Chuy's earnings?
In recent months, investors have kept their views about Chuy's earnings almost entirely steady, with the only change being to boost their full-year 2015 projections by a penny per share. The stock certainly hasn't stood still, however, seeing volatility in both directions and finishing 5% higher than in mid-November.

Chuy's third-quarter report in November set an incredibly positive tone for the Tex-Mex chain. Revenue jumped 15%, and net income gains of 31% showed the impressive growth trajectory that Chuy's has enjoyed lately. Comparable-restaurant sales rose by 4.2%, giving Chuy's 21 straight quarters of positive comps, and the chain also did a great job of cutting back on food- and labor-related expenses. The restaurant boosted its guidance for the full year, and ongoing expansion has given Chuy's exposure to 14 states.

Yet some investors have been increasingly concerned that Chuy's remains highly exposed to areas of the country that have been hit hard by the oil bust. Rival Brinker International (EAT -0.49%) said that its Chili's locations in Texas, Oklahoma, and Louisiana saw comps fall 6.6%, compared to much smaller declines in comps systemwide. Even with its rapid expansion, Chuy's still has more than a sixth of its locations in its home state of Texas.

Arguably, though, Chuy's is poised to capture business even in tough economic times. Compared to other restaurants, Chuy's prices are quite reasonable, with modest average check sizes that offer a value proposition for those looking to eat out. In many of its more established markets, Chuy's has become a go-to institution, with loyal customers who will find ways to keep visiting even in tough economic times.

Nevertheless, Chuy's has also found its stock under pressure whenever high-growth stocks in general fall out of favor. The key question that Chuy's needs to address is whether it can grow fast enough to meet the implicit expectations of investors. Currently, the consensus forecast among investors is for 2016 earnings growth of just 16%, which would be down from the 29% growth that Chuy's will post if it meets expectations for the fourth quarter. Yet revenue growth for 2016 is expected to remain stable. That suggests that investors fear that the new markets that Chuy's is trying to tap into won't be able to produce the profits that its existing locations are giving investors. Earnings growth of 16% isn't inconsequential, but for a stock trading at 30 times forward earnings, it might not be enough to satisfy investors.

In the Chuy's report, investors should watch closely at the mix between the chain's efforts to expand to new locations and its attempts to squeeze more profit out of the restaurants it already operates. If it strike the right balance and get the best of both worlds, then Chuy's could be able to get more earnings growth momentum for 2016 and beyond.