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The Cheesecake Factory Incorporated (CAKE) Is a Delicious Pick

Since 2009, The Cheesecake Factory Incorporated (NASDAQ:CAKE) has been rising, climbing from around $7.15 per share in March 2009 to nearly $42.40 per share at the time of writing. In the past six months, it rose by more than 29.5%, outperforming the S&P 500’s return of only nearly 13.2%. Investment gurus Steven Cohen and Chuck Royce have accumulated this company’s shares, owning nearly 390,000 and 60,600 shares, respectively. Should we consider The Cheesecake Factory Incorporated (NASDAQ:CAKE) a good buy now? Let’s dig deeper.

The Cheesecake Factory Incorporated (NASDAQ:CAKE)

Growing business performance and a strong balance sheet

The Cheesecake Factory Incorporated (NASDAQ:CAKE) is the operator of around 177 company-owned casual dining, full service restaurants under several brands including The Cheesecake Factory Incorporated (NASDAQ:CAKE), Grand Lux Café and RockSugar Pan Asian Kitchen. The company reported that it has begun to expand its footprint overseas, particularly in the Middle East and Latin America. In the past five years, The Cheesecake Factory Incorporated (NASDAQ:CAKE) experienced some growth in its top line, from about $1.6 billion in 2008 to $1.8 billion in 2012 while the net income rose from $52.30 million, or $0.82 per share to more than $98.4 million, or $1.85 per share during the same period. In the past three years, The Cheesecake Factory Incorporated (NASDAQ:CAKE) has consistently increased its comparable restaurant sales growth. In 2012, the comparable sales growth stayed at around 1.9%.

What I like about the company is its strong balance sheet with conservative capital structure. As of March 2013, it had $582 million in equity, $87 million in cash and no interest bearing debt. It recorded $95.45 million in deferred income taxes, which could be considered an interest-free loan from the government, and deemed landlord financing liabilities of more than $56.4 million. The company is trading at around $42.40 per share, with the total market cap of nearly $2.2 billion. The market values Cheesecake Factory at 9.2 times its trailing earnings before interest, taxes, depreciation and amortization (EBITDA).

It is cheap compared to its peers

Compared to Dunkin Brands Group Inc (NASDAQ:DNKN) and Krispy Kreme Doughnuts (NYSE:KKD), Cheesecake Factory is valued much cheaper. Dunkin Brands Group Inc (NASDAQ:DNKN) is trading at $44 per share, with the total market cap of more than $4.7 billion. The market values the company at more than 19.9 times its trailing EBITDA. Investors might be excited about Dunkin Brands Group Inc (NASDAQ:DNKN)’ nearly 100% franchised business, thus, the business is quite asset-light.

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