We recently published a list of 8 Cheap Restaurant Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where The Cheesecake Factory Incorporated (NASDAQ:CAKE) stands against the other cheap restaurant stocks to buy.
Soaring ingredient prices, operating expenses, and tipping fatigue have pressured the restaurant industry over the last few years. According to a report by National Public Radio (NPR) in August, the price of grocery items in the U.S. has grown 19% since the mid-2020s, compared to the cost of restaurant meals, which have risen by nearly 24%.
READ ALSO: 10 Best Restaurant Stocks To Buy According to Analysts and 11 Best Fast Food Stocks To Invest In Right Now.
This has resulted in a shift in consumer preferences as Americans become more cautious about where they spend their money. A survey by Lending Tree in May 2024 has revealed that 78% of Americans now consider fast food, which is integral to American culture, a ‘luxury’, forcing them to reassess their spending habits. Around 72% of the respondents said that they prefer having fast food during discount hours because of surge pricing in restaurants.
Despite the headwinds, it is not all lost for the restaurant industry, which continues to remain resilient, driven by the common desire among Americans to dine out. A critical factor that keeps the market thriving is how well it adapts to changing consumer preferences and price sensitivities. Several notable restaurant chains have been offering value deals, new menus, and discounts to lure customers during the holiday season.
Restaurants are also increasingly adopting automation in their quest for operational efficiencies and cost savings in an industry with thin margins. While the initial investment in technology is substantial, restaurant owners are hopeful that these upfront expenditures will enhance customer experience, reduce labor costs, and even be a solution to the challenges associated with labor shortages.
Despite facing temporary challenges, restaurant stocks have maintained strong performance this year. A restaurant ETF issued by AdvisorShares had gained 32.10% year-to-date as of the close of day on November 29, outperforming the broader market by just under six percentage points. According to data from the U.S. Census Bureau, food services and drinking places in October saw a 4.3% increase in sales compared to the same period last year.
The downturn in inflation is also a positive indicator for the industry. Consumer prices have eased down from the peak of 9.1% in June 2022 to 2.6% in October 2024. Interest rate cuts are also expected to boost the restaurant industry, as the low cost of borrowing would allow owners to go ahead with their expansion plans and also encourage consumer spending.
A baker in a busy bakery, arranging freshly baked treats on a tray.
Our Methodology
We sifted through screeners to identify restaurant stocks with a forward P/E ratio of under 16 as of the close of the day on November 25, 2025. From there, we selected the 8 stocks with the highest number of hedge fund investors, based on Insider Monkey’s database of over 900 prominent hedge funds as of Q3 2024. The 8 cheap restaurant stocks have been ranked in ascending order of the number of hedge funds holding stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
The Cheesecake Factory Incorporated (NASDAQ:CAKE)
Forward Price to Earnings Ratio: 13.39
Number of Hedge Fund Holders: 22
The Cheesecake Factory Incorporated (NASDAQ:CAKE) is an American restaurant company, that owns over 330 restaurants in the United States and Canada under the brands The Cheesecake Factory, North Italia, and a collection within Fox Restaurant concepts. The company also has a bakery division, that prepares food items, including cheesecakes, for its restaurants and international licensees.
CAKE’s shares have risen by over 9% since the announcement of financial results for the third quarter of 2024. Total revenue during Q3 stood at $865 million, with comparable sales outperforming the industry, reflecting consistent consumer demand for the brand. EPS was posted at 58 cents, beating estimates of $0.47 per share and growing 49% year-over-year. During the quarter, The Cheesecake Factory Incorporated (NASDAQ:CAKE) returned $14.2 million to shareholders, which included $1.1 million in share repurchases and $13.1 million in dividends.
The Cheesecake Factory Incorporated (NASDAQ:CAKE) has a robust expansion plan in place. It has opened 17 new restaurants this year and is on track to meet its target of opening 22 new restaurants for the full year. CAKE expects to further accelerate its unit growth, with plans to open as many as 24 new restaurants across its portfolio of concepts in fiscal year 2025.
Despite a challenging economic environment, CAKE’s robust financial performance indicates its strong brand recognition and customer loyalty, which it can leverage as it enters new locations and markets. The Cheesecake Factory Incorporated (NASDAQ:CAKE) has a low forward price-to-earnings ratio, which makes it one of the 8 cheap restaurant stocks to buy according to hedge funds. As per Insider Monkey’s database for Q3 2024, 22 hedge funds held a stake in the company.
Overall, CAKE ranks 3rd on our list of cheap restaurant stocks to buy according to hedge funds. While we acknowledge the potential of restaurant companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CAKE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
