First, it's important to note the strength of Cheesecake Factory's business compared to competitors'. Comparable sales for the full year were up 2%, the best they've been in six years. Competitor California Pizza Kitchen
These results are especially impressive against the weather backdrop of the last year, which has been blamed for everything from bad employment numbers to light after-Christmas shopping. In California, where 20% of Cheesecake Factory's company-owned stores are located, restaurants such as California Pizza Kitchen and Jamba
The stock, on the other hand, is less attractive, sitting at a P/E of about 22, while the average for the industry is about 24. Basically, the market is already well aware of Cheesecake Factory's strong business and has priced it accordingly. The shares aren't really particularly expensive, but there's nothing that screams buying opportunity either. In fact, this is an almost perfectly average stock.
The good news is that the shares are taking a bit of a beating today, and with the strong year-over-year improvement in earnings, and to a lesser extent sales, these valuation metrics have improved somewhat. With the new quarter's earnings added in, the P/E has come down from a rather high 30. If the market continues to be disappointed by future earnings improvements, the stock could get progressively more attractive. The best thing to do for now, though, is to just add it to your watchlist.
Fool contributor Jacob Roche owns shares of Jamba but holds no position in any of the other companies mentioned. Buffalo Wild Wings is a Motley Fool Hidden Gems choice. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.