Texas Roadhouse Inc (NASDAQ:TXRH) Passes the "Caviar Cruise" Quality Investing Screen

For investors aiming to assemble a portfolio of outstanding businesses for the long term, the quality investing philosophy offers a strong framework. This method concentrates on finding companies with lasting competitive strengths, sound financial condition, and a demonstrated history of creating high returns on capital. The "Caviar Cruise" stock screen is built to methodically filter for these characteristics, highlighting measurable figures like steady revenue and profit increase, high return on invested capital (ROIC), solid free cash flow production, and an acceptable level of debt. The aim is not to locate temporary discounts, but to identify superior enterprises deserving of long-term holding.

One company that appears from using this strict screen is Texas Roadhouse Inc (NASDAQ:TXRH), the well-known casual dining steakhouse chain. A detailed look shows a financial picture that matches the central principles of quality investing.

A History of Profitable Increase

The Caviar Cruise method favors companies that show not only increase, but high-caliber, profitable growth. The screen demands a minimum 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over five years, with the extra condition that EBIT increase exceeds revenue increase, a signal of better operational effectiveness and possible pricing strength.

Texas Roadhouse performs very well here:

• EBIT Increase (5Y CAGR): 19.65% – This greatly exceeds the 5% minimum, pointing to strong profit growth.
• Revenue Increase (5Y CAGR): 3.74% – While above the screen's requirement, the more important observation is the connection between this number and EBIT increase.
• Profitability Growth: The reality that EBIT increase is much higher than revenue increase over the past five years is a characteristic of a quality business. It implies the company is benefitting from its size, controlling costs well, and has a brand with enough strength to maintain good margins.

Superior Returns on Capital and Financial Strength

For quality investors, how well a company uses its capital is crucial. A high ROIC points to a lasting competitive strength—a "moat"—that lets a business create above-average profits from its investments. The Caviar Cruise screen establishes a high standard with an ROIC (leaving out cash, goodwill, and intangibles) above 15%.

Also, financial stability is essential. The screen uses a Debt/Free Cash Flow ratio below 5 to confirm obligations are easily covered by the cash the business generates.

Texas Roadhouse's figures are impressive:

• ROIC (ex. Cash, Goodwill & Intangibles): 20.00% – This easily passes the 15% requirement and puts the company with the best in its field, as mentioned in its fundamental analysis report. It shows that management is very good at using capital to create shareholder value.
• Debt/Free Cash Flow: 0.0 – The company has no debt, providing it with significant financial options and protecting it from interest rate changes. This clean balance sheet is a major quality feature.
• Profit Quality (5Y Avg.): 122.83% – This ratio, which matches free cash flow to net income, is excellent. A number regularly above 100% means the company is turning its accounting profits into even more actual cash, a mark of high earnings caliber and operational effectiveness.

Fundamental Analysis Summary

An inspection of the company's detailed fundamental report supports the screen's results. Texas Roadhouse receives a good overall fundamental score of 7 out of 10, with very high marks in Profitability (9/10) and Financial Health (8/10). The report notes an "excellent" ROIC of 17.27%, sector-leading return on equity, and reliable historical growth in both revenue and earnings per share. Analysts also expect ongoing EPS growth in the mid-teens.

The main point of care, typical for many quality stocks, is in Valuation (3/10). The stock sells at a high price, with a P/E ratio above 26. The report clearly says the company is "quite expensive at the moment." For the quality investor, this highlights the philosophy: while price always counts, the high cost is frequently the ticket for a better business. The choice depends on whether the company's lasting strengths support the current price for a long-term owner.

Is Texas Roadhouse a Quality Stock?

Judging by the numerical filters of the Caviar Cruise screen, Texas Roadhouse makes a strong argument for quality investors. It displays the preferred mix of profitable growth, exceptional returns on capital, a very strong balance sheet with no debt, and excellent cash flow conversion. These are the clear indicators of a business with a firm competitive standing in the casual dining industry.

The Caviar Cruise screen is built to find such candidates methodically. You can review the present results of this quality investing screen and find which other companies meet these strict filters by viewing the screen here.

Finally, the quality investing method needs looking past the figures to judge less measurable aspects like brand power, management skill, and long-term sector directions. Texas Roadhouse's reliable performance, strong customer devotion, and careful unit growth plan indicate it has many of these non-tangible traits too. For an investor at ease with its high price in return for these features, TXRH deserves close study as a possible long-term holding.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.