Welcome back everyone today on the Joseph Carlson Show.
I'm excited to jump into this episode because we're going to
be covering the upcoming earnings this week.
We have a lot of companies that you'll recognize, ones that are
in My Portfolio, ones that you are likely invested in.
Giving an update this week because after all its earnings
season, it has begun. It begun last week with Netflix
reporting their earnings and we got to see how that turned out.
Netflix did a lot of good things, a lot of good things in
their earnings report. The stock is now up to seven,
77170 dollars, up 10 to 11% after earnings and another
almost 1% today. While the rest of the market is
down. Netflix just crushed it and it's
still crushing it. It's up 65% year to date.
If it keeps going, it's going to be a double in 2024.
And Netflix, of course, is my largest position now.
It's actually surpassed Amazon become my largest position in
the story fund, an $80,000 holding with $34,000 in gains.
I am incredibly bullish on this company.
I have been for a long period of time.
And of course, I'll be doing a full analysis of Netflix's
earnings tomorrow. So if you want to see a little
bit more about Netflix, my expectations for the company
over the next couple of years, just make sure to subscribe to
the channel and I'll have more content on that tomorrow.
But for today, we're going to be focusing on this week.
The company's reporting earnings this week, there are a few of
them that are very important. Here's the list of the most
popular companies reporting earnings this week.
On Monday, like usual, I don't see any that I think are all
that interesting. It's a lot of financial
companies and banks that I don't do much with, but we get into
the most exciting one starting on Tuesday.
Tuesday before market open, we have Moody's reporting earnings.
Moody's is a very wide MO company, a dominant duopoly
company with S&P Global. Both Moody's and S&P Global are
reporting their earnings this week.
Moody's is market open before Tuesday.
S&P Global is market open before Thursday.
I'll be covering both of these companies as they're both credit
rating agencies. They're both data and analytic
companies. They have quite a bit of
crossover and I'll be going over the expectations I have as both
of these companies are two of my largest positions.
Now we also get into a very busy day on Wednesday.
Wednesday before market open, we have Coca-Cola, so that's a big
one to jump into. I'll be sharing some thoughts on
another Warren Buffett holding. And then Wednesday after market
close, we get the most exciting earnings of the week, the number
one being Tesla. Tesla has been through a slump.
The company has been flat for nearly five years.
If we look back five years, it's up a lot, but that includes the
gains that were made in 20/20/2019.
Everyday the five year return for Tesla is getting lower and
lower As for the past four years it's been completely flat.
Earning no money for roughly 4 years is a long period of time.
And it seems like every earnings report is another opportunity,
another time where Tesla investors are told to be patient
because there's something around the corner.
Is that something finally here? Is Tesla going to allow us with
these earnings we'll be discussing in this episode.
Now of course, we have some other big names here.
We have ServiceNow, this is a fast growing SAS company that
automates a lot of processes. We have Canadian Pacific, a
Class 1 railroad that's one of the holdings in My Portfolio.
We'll be looking at that one. And then of course, Thursday
after market closed, we have another company that's moved up
the rings. Texas Roadhouse has matured
quite a bit since I started with this company.
I bought it at around a $4 billion market cap.
Now, Texas Roadhouse has become one of the biggest winners in My
Portfolio with $44,000 in gains. This is a massive position
that's mostly made-up of gains at this point.
On top of paying a big dividend, Texas Roadhouse has just been on
fire. This company's doing so well,
it's another one that's up plus 50% year to date, beating out
the vast majority of companies in the Q and the S&P 500.
And this doesn't include dividends.
This is another big dividend payer that's been raising its
dividend over time. Can they keep it up?
Well, there is some hesitancy around this one.
In fact, I came across a recent analysis that was a bit bearish
on Texas Roadhouse. It's by Yuval Rodem of Seeking
Alpha, and he says that he's expecting a miss in revenue this
quarter. So we'll be going over that
research, looking at why he thinks Texas Roadhouse will miss
their revenue this quarter and seeing if I agree.
So we have a lot to dive into, a lot to cover.
Let's go ahead and jump in Now. Starting off, I'm going to skip
Monday. Once again, there's not many
companies there that I find interesting.
But when we get into tomorrow morning, we have Moody's
reporting their earnings. Now, if you're not familiar with
Moody's, it's a credit rating agency.
They're one of the businesses that rate the huge majority of
debt issued within the US. In fact, Moody's and S&P Global
combined, they rate a combined 90% plus of all debt that's
issued across the globe. That is just massive.
The debt markets are multiples bigger than the equity markets.
So they are rating an enormous amount of debt and they're like
a toll booth. Whenever they rate debt, they
charge for it. The companies that pay to have
their debt rated get a lower interest rate on their debt.
That's why they pay Moody's and S&P Global.
So they have a very good globally dominant position and
both of these companies offer similar services.
So instead of going over these separately Tuesday and Thursday,
I'm going to be covering both of these at once.
Moody's earnings growth trajectory has increased over
the past year as a company has ramped up its earnings per share
growth. The reason that these companies
are ramping up their earnings per share growth is precisely
because of the ratings business. We can see that over the past
year, in fact, if we zoom in a little bit here, over the past
year or so, Moody's has been growing in revenue a lot,
growing near 20%. But why is it instead of
declining, it's now ramping back up?
When we look at the KPIs, the key performance indicators, we
can see precisely why Moody's business is roughly broken up
into two halves. Both of these businesses
underneath the Moody's names are wonderful businesses.
One of them is Moody's Investor Services, that is the credit
rating business. So if you see Moody's Investor
Services, you think credit rating, what they're doing there
is they're doing analysis on the credibility of different
companies and companies pay to have them rated.
That's all the business is. And again, you can dive into
this one, but it has immense pricing power.
It's very sticky. It's a super wide mode globally
dominant business that they share with S&P Global.
The other half is Moody's Analytics where they take a lot
of their learnings and the data, a good portion of it, and they
package it into a subscription and they sell that data to
different companies. Then they also have different
things that they sell. If we break up Moody's Analytics
actually have another KPI that even breaks this down into
greater detail. They have decisions and
solutions, research and insights.
They have in depth data. Again, we're in an age of
information, so they offer a lot of that as subscriptions, data
and information. So it's a little bit vague, but
you can also just Google these to learn about them, each one of
them. They have different packages and
services that they sell that many companies find very
valuable. It gives them an edge.
So this is the Moody's Analytics portion of the company.
When we look at why Moody's is all of a sudden growing over the
past year, it's not Moody's Analytics.
The above average growth is from the Moody's Investor Services,
and that is because more companies are starting to issue
debt once again. We all remember what happened in
2021 and 2022. The market fell as the Fed
raised interest rates. They're raising interest rates
to combat inflation. As interest rates went up,
companies held back on issuing new debt.
They didn't want to issue debt at a higher interest rate, which
makes sense. But now that a couple years have
passed, companies simply have to issue more debt.
They have to because they have to renew debt and they have debt
that they can't pay off. So companies are now once again
starting to issue more debt. As they issue more debt, they
need that debt rated. And here you have Moody's and
S&P Global here to rate that debt.
And that's why it's skyrocketing up, especially in the past two
quarters. If we compare this again to S&P
Global, you'll see something very similar.
S&P Global again has the different revenue segments.
They have a little bit more diverse of a business, but one
of them is ratings. When we look at just the ratings
business, it makes this very clear.
It went down in 2021 and it started to renew growth in 2022
as more and more companies are issuing debt.
When I invest in companies like this, I'm looking for long term
secular trends, things that will continue for a long foreseeable
amount of time. And one of the things that I
consider with both of these companies, Moody's and S&P
Global, is that companies are going to issue debt and they're
going to issue more and more of it on a global scale.
As economies and countries continue to print more cash,
causing more inflation, these companies will continue to rate
more debt. This is why I have both of these
companies as a sizable holding in My Portfolio.
If we look at them here, S&P Global is a $108,000 position,
$33,000 in the green. Moodys is a $50,000 position,
$10,000 in the green. Both of these companies have
done really well given the time period that I've invested in
them. Right now, given the growth
profile of these companies, the tailwinds ahead and the fact
that these companies are both trading at a reasonable
valuation, I'm not too concerned about the earnings going into
this week. Now moving on, we get into
Wednesday before market open and we have Coca-Cola.
Coca-Cola is actually doing surprisingly well.
If we look at the performance this year, it's up 17%.
And their last quarter, they actually crushed earnings.
They raised guidance, they had higher volumes, they raised
their projections. Their increase in sales in the
US was something like 20% or it was 10% in the US.
It was 20% in Mexico. They're growing sales across the
world and somehow they continue to do this.
Coca-Cola is one of these companies that by its
characteristics, it looks really good.
It's a Warren Buffett holding. He sold it for a very long
period of time. It's a $300 billion market cap
company that generates very steady revenues.
They got rid of their bottling. So they're just a very
efficient, capital efficient company with very low CapEx
investment. They're basically a licensed
company that sells ingredients like syrup.
They have their Coca-Cola freestyle machines, which are
they're just amazing. Those freestyle machines are
awesome. So Coca-Cola is a great company
by all the characteristics, but every time I look at this one, I
come to the same conclusion and I, I again, I could be off
saying this about Coca-Cola. So this is something that maybe,
maybe it will be clipped like in 10 years later show how wrong I
was. I hope that's the case.
But I just can't get over how many companies are going in to
soft drinks and energy drinks and sugar drinks and milk based
drinks at all these drink companies.
The competition. The competition and drinks is so
fierce. I've never seen anything like
it. Drink competition is one of the
most fiercely competitive spaces I've ever seen.
You have companies like Rockstar with Pepsi, you have Celsius,
you have Red Bull, you have Monster Energy, you have Bang.
The energy drinks themselves, they're just endless.
I can name off 20 different energy drinks that I see in the
store. On top of that, we have other
companies like Starbucks that are making big changes, that
have new leadership that are centered around drinks and many
of them having a lot of caffeine that in one way or another
people can only have so many drinks during the day.
We have only so many options. People talk about there being a
lot of competition in different industries and what I see with
Coca-Cola and the entire soft drink, energy drink, entire
drink business as it seems very competitive today.
Now, Coca-Cola is unique that it's so big, it has so much
brand value, it has so much distribution.
They have already such a massive network effects that I believe
this company can withstand the intense pressure of increased
competition. I still think they'll be able to
grow. I still think these earnings
will be good. People are paying for the extra
soda. They're paying three and $4.00
for it at restaurants. They're buying the in the
freestyle machines. They're buying it in fast food
siding. Coca-Cola will be fine.
When I'm looking at different industries, I want to get into
different companies I want to invest in.
I like to invest in ones where there's more of a concentrated
market share, where there's less intense competition, there's
fewer competitors that are pouring billions of dollars into
building their brand. We already saw what happened to
Celsius. This is another up and coming
brand. It's still just massive.
We look at the revenue growth. We look at this on a trailing
basis. Check out this revenue.
It's it's explosive. It's faster than most tech
companies, most SAS companies. It went from 88 million, $70
million in a full year to now 1.5 billion.
They seemingly came out of nowhere.
They branded more towards women instead of Monster Energy
branding towards men. They carved out another niche
and now they're another big competitor competing with the
likes of Coca-Cola. So for me, I believe Coca-Cola
will be fine. This isn't a gloomy take on the
company. I think they're going to
continue to grow, pay their dividend, grow their earnings
per share at a moderate rate. But I have to believe the level
of increased competition, the amount of companies wanting to
get you to drink their drink and get into the habit of consuming
their product over Coca-Cola has to put pressure on the revenue
growth and pricing power of this company.
So we'll see what happens with Coca-Cola.
I think they're going to be fine this quarter.
But long term, I become increasingly concerned about
this industry moving on. We get into Tesla the biggest
earnings report of the week by far, reporting earnings after
market close on Wednesday. Let me say that I'm concerned
about Tesla investors over the next year or so, and here's why.
Tesla stock is one that has been flat for roughly 4 years.
When investors look at Tesla stock, a lot of them are looking
at the past gains of the company, the massive CapEx
investment cycle, the ramp up in production, the enormous growth
that Tesla had in 2018-2019 and 2020.
And we see that in the stock price over the past five years.
On A5 year basis, Tesla's up 1200%.
So massive gains. It looks just incredible.
But when you look at this stock chart, you notice that virtually
all the gains, in fact all of them are just from 2019 to 2020.
That's where all this 1100% gain came from.
The stock price went from $20 per share up to $283 per share.
So there's your gain. It's all right here.
In these two years since then, for the past four years, Tesla
stock has been flat and down. The company has had a lot of
volatility, and investors have enjoyed no gains while the
market, in comparison, has raced up while many other companies
are racing up every single day. And one of the concerns I have
is what will happen if Tesla has no gains for just another year.
If Tesla goes a full year without having more gains, the
company will be flat for a five year basis.
So if you race 2019 to 2020, if this is gone, if we've moved to
the end of 2025 and Tesla's still treading water, it's still
flat. You'll be able to go to the five
year period and it will say 0 percent or even negative.
That's going to be a toll. I think that's going to be a
toll mentally and psychologically on Tesla
investors. A full half a decade of no
gains. What happens when people are
reminded over and over again that you've been in the stock
for half a decade and made no gains, while the market, by
comparison, has gone up 100% or 150%?
People are earning money in different companies.
That could cause a lot of people to sell out of the stock, to
become a little jaded on it, a little bit disappointed with the
performance. When they get to that point,
they might end up selling. Because when you get to a full
half a decade with no gains or being in the red, investors may
start to wonder why it deserves its high multiple.
If it doesn't deserve the high multiple, that may cause more
downward pressure. So part of the reason that I'm
concerned about Tesla, especially over the next year,
is just the psychology behind it.
A longer stock goes without no gains.
I think the harder it is to justify the high multiple.
We see what happened with companies like Disney that once
had these very bright futures. They're going to be a major
streaming competitor. They're changing their business
model and then things went South and over the past five years,
it's in the red and this is what it looks like.
This is what gets highlighted, and now nobody's excited for
Disney. It's hard to get that magic back
once you've lost it. The next thing that I'm
concerned about with Tesla is another thing that I'm beating
the drum on for a long period of time.
In fact, the past four years, which is a valuation of the
company. Valuation is a combination of
the current multiple the company trades at combined with your
projections of the future growth.
But to inform the valuation, we can always look at the history
of the company, where it stands right now and where it's current
multiple is today. That helps us inform what's
going to happen with the future of this company and what you
have to assume to have happen for this company to be worth the
current price. Tesla is a massive company by
market cap. When we look at the market cap
here, let me zoom in, it is $705 billion, $705 billion.
So we're talking about a company that's three quarter of a
trillion dollar market cap. So we have a very large company.
The problem is they don't generate a lot of cash flow to
justify that market cap. Today.
When we look at the amount of cash flow that Tesla generates,
we have it right here on a trailing 12 month basis.
This is the most accurate way to view it with the current trends
and what they've done over the trailing gear.
We look at Tesla's massive ramp up.
This is the reason why the company gained the market cap
and gained in stock price so much from 2017 to 2020.
We saw that in the charts, but those gains have already
happened. The stock is already at that
price and what we've seen for the past two years, we can see
it right here. In fact, let's zoom in.
Over just the past five years, we see free cash flows falling
nearly every quarter. They go up and down on their
steady downward trend. When we look at Tesla right now,
over the past two years, they generated nearly $2 billion in
free cash flow going back 12 months, so nearly 2 billion
dollars 1.7. We can give them the benefit of
the doubt and say they generated 2 billion dollars, $2 billion in
free cash flow for company trading at a $700 billion market
cap. Very, very expensive.
When you look at it at the current multiples, you are
implying enormous levels of growth to justify this current
market cap. If we give a comparison here,
I'll just compare it to a company that recently reported
one of my holdings, one that I am bullish on, Netflix.
Netflix is at less than half the market cap of Tesla.
Netflix is at 327 billion, 327 * 2 is around 6660 and we have
Tesla at 700. So even if we got Netflix and we
somehow replicated this company, made a duplicate of it, it would
still be cheaper to buy both those Netflix companies,
doubling the the valuation of it than buying Tesla.
Today. When we look at the free cash
flow that Netflix generates, this is true undiluted free cash
flow. In the past year, Netflix
generated $7.2 billion in free cash flow.
So to put this in perspective, Tesla investors are paying
double the market cap of a Netflix like they're buying over
2 Netflix companies. And as a result, what they're
getting over the past 12 months is 1/3 of the free cash flow
that one Netflix generates 1. Netflix generates $7 billion.
If you were to double Netflix, it would generate $14 billion in
free cash flow, which if we do the math, means that on the
current free cash flow multiple Tesla is 7 times as expensive as
Netflix 7 times. Now, you may say that Tesla and
Netflix are different companies. Maybe Tesla has more growth
opportunity ahead of it than Netflix.
Maybe it has a greater total addressable market, right?
Maybe their future investment profiles look different.
What I I think it's true, there is an argument that Tesla could
become a much bigger company potentially if some of these
more grandiose visions work out. But even if we look at the
current growth rates of the company, when we look at Tesla
right now, the revenue growth has been flat around 5 quarters.
It's grown 1.37% on a trailing 12 month basis over the past
year. So Tesla also has very slow
growth right now. The company's really not
growing. Netflix, which again is 7 times
cheaper on a free cash flow basis, just grew 15% in revenue.
It was 20% on an FX neutral basis.
So on growth rates, you're paying more for a company, much
more for one that has flat revenue growth.
And This is why I'm concerned about the valuation of the
company. It's not to be hard on Tesla
investors. I'm not trying to be
discouraging here. It comes across that way.
But I look at the numbers. I look at what's priced in
today. I look at the reality of the
situation and the discrepancy between the current fundamentals
and the current cash flows and metrics and growth of this
company. And I see a very large chasm of
where this company is right now and where it needs to be to
justify its valuation. Now, they may be able to bridge
the gap. They may be able to to fill in
that valuation with incredible explosive growth like they've
done in the past, but it's difficult to pull that off.
Elon did it once. He grew the company from 2017 to
2020, but it's going to be very difficult to justify a $700
billion market cap today. This is why I believe many Tesla
investors are looking to the future and these more grandiose
visions of the future. Robotaxi.
Tesla taking over Waymo taking over Uber, growing their
robotaxi. With the new Tesla event from
Elon, you have the Tesla Optimus spot.
The Tesla Optimus spot was demoed during this latest event
as well. They marched out.
They were partially controlled by AI, which is what Tesla said.
But I think it was very clear that at least the talking was
done by humans. There's humans during during the
event talking through the Tesla Optima spot because it was a
little too smooth to be AI, but that has some promise.
It's incredible the degree of progress Tesla's made with the
Optima spot. So maybe there's something there
in the future as well. But the point remains that Tesla
needs to do something and they need to do something quick.
They need to grow their revenue. Their revenue cannot remain flat
and have this type of valuation. Operating margins have been on a
steady March down and they're starting the bottom.
So we need to see revenue growth.
We need to see margin growth. We need to see real advancements
towards their goal of Robo Taxi. No more demos, no more events.
We need to see them on the road functioning like we see with
Waymos. So Tesla has a lot to live up to
right now. For me, it's it's like it's been
for the past four years. I'm too concerned about what's
currently priced into the company and what Tesla has to
amount to to be able to grow from here.
They need to be able to mount to a lot.
So for me, this is one that I firmly stay on the sidelines.
I think it's going to be a very important earnings for Tesla.
They need to grow their revenue. They need to grow margins.
They need to show real progress, but I'm not personally confident
enough that they're going to be able to do that to the degree
necessary to justify the current valuation market cap.
Let's go ahead and move on to ServiceNow.
ServiceNow is reporting its earnings at the same time of
Tesla after market close on Wednesday.
Now, ServiceNow is a company that I think most people have
heard of, but they probably don't know much about.
If we look at what the company does, basically every company is
made-up of processes. So if you have a big
organization, you need to have process after process after
process. How do you have a process for
dealing with customers or sales teams or internal management
hour, you name it. It's just a bunch of processes
that these companies have to deal with, and ServiceNow
automates processes. That's the most basic
description of the company. Now you can see that they
pivoted to AI. They're along with the trends
here, but what this company does is automation of different
variable processes. IT operations, customers,
employees, app development, you name it, they have tools to
automate it. Now.
This has been incredibly incredible product for the
market that sustained very fast, reliable growth.
If we look at the revenue growth of service now, this is one of
the revenue growth line items that looks like, well, it just
frankly looks fake. It looks like it's a made-up
one, almost like it's a scam because of how consistent it is.
Let's go ahead and take a look at it here.
This is on a trailing 12 month basis.
That is the revenue growth over a trailing 12 month for service.
Now you can see that every single quarter, I think going
back to 2010 on a trailing 12 month basis has only been an
incremental increase. Every single quarter has been an
incremental increase for at least 10 years, around 14 years
now. This much growth over time,
especially growing at a rate of 24% still today, obviously means
that this company is going to trade at a high multiple.
Any company like this that's a SAS company growing this fast is
going to be a little bit pricey. The company has a 55 Ford PE
ratio and it trades at a 1.6% free cash flow yield and they
also have a lot of stock based comp that eats into that free
cash flow they generate. When we look at the returns of
the company this year, it's up 33% outperforming the S&P 500 in
the QQQ. So ServiceNow investors are
getting alpha from this position and that is because of the
continued fast accelerated revenue growth of the company.
So ServiceNow is in that category of having high growth
and high growth prospects, but trading at a very rich
valuation. For that reason, I put it in a
category where if I already held the stock, I'd probably still
hold it. I would just hang on to it.
But for me, it's not a buy today going into these earnings.
Now at the same day on Wednesday after market close, we also have
Canadian Pacific reporting earnings.
Canadian Pacific is on paper a great company.
It is a Class 1 railroad with a dominant network.
It goes all the way from Canada to Mexico.
They have opportunities to grow and grow their free cash flow
per share. Everything looks good for this
blue chip company, but regardless, it is not helped out
with the returns of My Portfolio.
My Portfolio is around $280,000 in the green.
It's doing really well this year and over the past couple of
years, it's just excelled and there's been a lot of companies
that have outperformed greatly, companies like Costco that have
crushed it. New holding with Booking, it's
already doing super well, up almost $8500.
We have other ones like Texas Roadhouse and Apple and
Microsoft. We have ones like Moody's and
S&P Global that are all adding to the performance, creating
alpha for the portfolio. But then I have a couple, just a
couple holdings that really aren't holding their weight and
Canadian Pacific is one of them. I put $33,000 or $32,000 in this
company. It's only up $1100.
It's really going nowhere. And this is holding it for
around a year, a little over a year.
So it's been a short amount of time.
Maybe this one will improve over the long term.
But out of the companies in My Portfolio, Canadian Pacific
right now is my most likely to sell.
It's a company that I could be selling over the next year, and
there's a couple reasons why. First of all, if we look at
Canadian Pacific, we'll bring it up here again, it's a great
company. It trades at a reasonable
valuation, a 2 1/2% free cash flow yield, a 21 Ford PE ratio.
So you're not paying like an insane price to buy this company
right now. There's not too much baked into
it. The revenue growth looks good,
but it looks a lot less good when you factor in the fact that
they did a major acquisition. So there's a lot of dilution and
debt issuance to get this revenue growth.
So this is not organic revenue growth.
When we look at the earnings of the company, this is another
issue I have. The earnings are all over the
place. The company's not growing
earnings anywhere like Texas Roadhouse, Costco, Microsoft,
Apple, you name it. The companies in My Portfolio,
most of them are growing their earnings rather fast.
Canadian Pacific is in this category of trying to get this
back on track. Another reason that I'm
considering selling Canadian Pacific is simple opportunity
cost. I don't think this company's
bad. In fact, I think it's a
incredibly durable, lifelong holding that you can hold
without too much trouble. But there's an opportunity cost
to every dollar you have invested in a company.
There's typically more opportunities.
When I look at the opportunities, I have the
alternatives. There's other interesting
companies, platform companies like Booking Holdings, companies
like Uber and DoorDash, companies like Netflix and
Amazon. So when I'm looking at this
position, I'm always thinking if it's the best place to have my
money, where I'll have the best future expected returns.
And I believe I have a better track record investing in
technology companies that I'm able to do in depth analysis on.
So I also believe I could use the money probably better in
other places. And that's why even though going
into this earnings, I don't think there's going to be any
problems. I expect Canadian Pacific to
meet most of their goals, if not exceed them.
I'm not concerned about this, this earnings in particular at
all, but it's one that I am considering selling over the
next year. We'll see what happens.
Now moving on, we get into Thursday.
We've already covered S&P Global with Moody's, S&P Global's
reporting Thursday before market open and then we get to Thursday
after market close, which we have a new company that made the
list here as one of the most popular ones, which is Texas
Roadhouse. This company has proven itself,
the management have proven themselves, and now it's
becoming one of the more recognized companies in the
market because of its incredible free cash flow growth, its
earnings growth and its revenue growth.
Texas Roadhouse has been highly successful.
If we look at the stock chart going back year to date, it's up
52% this year, blowing away the indices.
It's just been incredible. It's been quite the ride to be
on. And again, this doesn't factor
in dividends, which they pay a hefty dividend that they've been
raising above 10% per year. So when you factor in the
dividend, it's probably another 4 or 5% higher at this point.
If you factor that being reinvested, When we look at the
five years, Texas Roadhouse is up 273% over the past five
years. When we look at the past 10
years, it's up 563%. Fun fact, with dividends
reinvested, Texas Roadhouse has outperformed Google year to
date. The one year, the five year and
the 10 year, this company's outperformed Google.
It's monstrous performance has been a result of its incredible
operations over the past decade. It's outperformed operationally
and execution wise every casual dining restaurant.
So you compare it to Olive Garden, different steak houses,
Ruth Chris, You can compare it to companies like Chili's or Red
Lobster or Cracker Barrel. Most of these companies are
struggling. While Texas Roadhouse is
outperforming most tech companies, it's also
outperforming a lot of quick service restaurants.
Ones even like like Chipotle or Starbucks.
It's doing just as good or better than most of those.
So we look at the exceptional performance of this company and
the operations of it and it leaves some questions here.
First of all, what is powering this growth?
When we look at Texas Roadhouse, there's a couple of things I can
look at to show you what's powering the performance of this
stock because this isn't one that's just trading up for no
reason. The stock isn't up 51% this year
for no reason. When we look at the trailing 12
month revenue and we look at that over time, it paints a
clear picture. This company has always
consistently grown over time. We see that all the way from
2004 to 2018. We get into 2020 and they had a
couple quarters where it went down.
Understandably, if COVID didn't happen, you can imagine that
this would be a nice smooth graph to the upside.
But what happened since COVID was you'll notice that the the
revenue growth actually accelerates.
It's going up at a steeper trajectory now than pre COVID.
So COVID created an instance where the strongest companies
survived and they took market share from weaker companies
because they had a low fixed cost and no long term debt.
They could sail through this period no problem while other
restaurants were going bankrupt. Then coming out of the pandemic,
people started to go out to eat again.
Well, of course, the companies they chose to go to were the
only ones remaining open, which Texas Roadhouse was one of them.
Texas Roadhouse increased their value proposition by keeping
their prices low. They gained enormous amounts of
same store sales, foot traffic, and then of course, they did
very moderate 2 to 3% price increases, which was way below
companies like McDonald's at the time, which were raising their
prices enormously over this time period, earning even more
customer traffic for companies like Texas Roadhouse.
So their growth actually accelerated after the pandemic
and they've been able to keep that up.
Now during this time period, they also open up more
restaurants than analysts expected at a faster cadence
than analysts expected. Their same store or weekly
average sales grew faster than expected.
Every part of this business continued to increase week over
week. We look at the total weekly
sales, it was $158,000 per week per restaurant last quarter.
Now we look at the to Go orders alone and that is now a $20,000
per week business. The to go orders have been
streamlined because of different operational improvements in
their company. Because of the incredible
operations of this company, the consistency of their food, the
value proposition, the low prices, and the fact that their
app works great. They have a good wait list.
They have to go ordering down to a science now.
They've really pushed out great operations, great processes, and
that resulted in rapid improvements in their earnings
per share. You can see the effects of
market share gain in this industry.
Texas Roadhouse growing in their brand awareness and market share
has caused the earnings per share to accelerate.
They have massive jumps up. In fact, in 2022, they're
earning around $4.00 per year in earnings per share, as the most
recent 12 months it was $5.51. Incredible growth and earnings
per share 27% year over year. So you have a company that's
growing your earnings faster than most, a big tech.
That's why the company's outperforming most of big tech.
Now, the earnings per share are expected to grow at a continued
fast pace this quarter. And I think they'll hit their
earnings per share target. If they miss.
I believe it will be a very narrow miss.
Now, while all of this has gone on, investors have started to
pay attention to this company. It's getting more notice, more
popularity across different forums, more videos made about
it, Jim Cramer's talking about it, it's on CNBC.
People are noting the fast growth of this company and some
people have said that while Texas Roadhouse's growth was
good, it now has some headwinds. And in fact, one investor here
and analyst Joval Rodemus says that he's expecting a miss in
revenue this quarter. Let's go ahead and take a look
at why he believes Texas Roadhouse will miss this
quarter. He says I expect a miss on
revenue next quarter and comp headwinds, comparable headwinds.
1 interesting phenomenon in investing is that good quarters
become a headwind for next year's results and a bad quarter
becomes a tailwind. That is because the very simple
math, it's much easier to grow 10% from a low number than it is
to grow 10% from a high number. In terms of comps, Texas
Roadhouse enjoyed relatively easier comps in the first half
of 2024 due to the timing of price increases last year, with
the first increase taking place in late March.
As a result, Q3 of 2024 will be the first quarter to fully
overlap the price increase, which mounts to 2.2%.
So there we have his argument for why Texas Roadhouse will
likely miss on its revenue this quarter.
In my opinion, I don't buy it. I think restaurants like Texas
Roadhouse are doing so well right now.
When I look at what's going on outside, just go outside, visit
some Texas Roadhouses, go look at the app, go on a weekend,
spend some time there on any of them across the country.
People want to be outside. They want to be having social
events. We are trapped inside during
COVID. It wasn't a fun time period.
People still have money to spend.
Look at the stock market. People feel rich right now.
They want to go outside and have experiences and of course they
prioritize good experiences at good value.
Texas Roadhouse offers both of that.
I think they're same store sales this quarter will likely be
around 7%. I think they're going to come in
with five, 6% growth in in restaurant sales.
I think the company will continue to gain market share
from it's competitors because of how streamlined the offering is.
And even if they do miss in revenue, which I personally
think is unlikely, I don't see that as a big deal.
The company's growing it's revenue quickly.
Whether they miss by a percent or two doesn't really matter in
the long run. We've seen so much fluctuation
in revenue over time, but the growth story still remains.
This company is on fire. I don't think it's lost steam
yet. I'm still invested in it and I'm
still holding my shares and that's going to be it for this
busy week. If you want to see follow up
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That's all for now.