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Dear Mr. Berko: Please give me your opinion of Texas Roadhouse restaurants. Would you buy the stock at the current price?

D.B.

Vancouver, Wash.

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Dear D.B.: I like Texas Roadhouse Inc. (TXRH-$26.23); however, I admit that my opinion is based more upon its killer ribs, macho Texas red chili, piquant fried pickles, succulent grilled pork chops, tender steaks, gustable hand-battered onion rings and ambrosial desserts. I’ve sampled the menu in Florida, Colorado, Minnesota, Texas, Kansas, California and Canada, and my only disappointment was a grape ice cream! Grapes go well in jellies, sodas and ice pops, but they don’t seem to be popular in cakes, pies or ice creams.

Texas Roadhouse has 405 locations (and more on the way), which offer well-presented large portions of modestly priced lunches and dinners in 7,000 square feet with exceptional service and a rustic ambience. The low, $16.44 average check purchases superb food and impressive service, and it certainly encourages repeat customers. And some of those repeat customers insist that the waitstaff is taking happy pills just as the restaurant opens for business. Frankly, I’d rather dine at a Texas Roadhouse than I would at one of those fancy places where they don’t cook the green beans, but they cook the tomatoes.

Kent Taylor, the company’s chairman and CEO, owns more than 6 million of the 70 million outstanding shares. He has done a yeoman’s job of building Texas Roadhouse from a concept in 1992 to his first restaurant in Clarksville, Ind., in 1993 to hundreds of eateries today, each employing about 100 people. He drives 35,000 miles a year searching for new locations, visiting his restaurants and disguising himself with a dirty T-shirt, a sweat-stained hunting cap and buck teeth. Texas Roadhouse is a remarkably well-run casual dining restaurant. And this year, Taylor expects to open locations in Kuwait City and Jeddah, Saudi Arabia, on the Red Sea, where I sure hope he disguises the pork chops.

Texas Roadhouse came public in 2004 at $20, with revenues of $360 million and earnings of 25 cents. It split two for one the following year. In 2011, revenues were $1.1 billion, and earnings were 88 cents a share. That’s when the board declared its first dividend of 32 cents. This year, Texas Roadhouse expects to retail $1.4 billion of viands and victuals, earn $1.15 a share and pay its third annual dividend of 48 cents.

However, a major concern is that casual restaurants are susceptible to declines in consumer spending, especially in a weakened economy with falling spendable incomes. And there’s concern that health and dietary issues may cause a shift in consumer preferences away from high-fat options, such as Texas Roadhouse’s huge, savory, juicy steaks. Another concern is rising food costs. Last year, food costs grew 6.8 percent, reducing net profit margins to 5 percent even though menu prices were increased. This year, Texas Roadhouse may not be able to raise prices enough to offset the increases in meat, vegetable and bakery costs. But Taylor runs an efficient, lean business model, and units are open only during the dinner shift on weekdays (lunches are only on weekends), limiting downtime costs during the day. Meanwhile, the staff is always fresh and Johnny on the spot for dinner. Texas Roadhouse has a strong balance sheet and only five board members, who authorized a $90 million share buyback in the past two years.

Management has targeted 40 new units for 2014, which may be reduced by half as commodity prices continue to rise and consumer spending slows. I like the company. I like the menu selections, and I can’t recall a less than enjoyable experience among the dozens of times I’ve dined at a Texas Roadhouse restaurant. I admire Taylor’s management skills, and his successes during the past decade are impressive. However, I feel that Texas Roadhouse shares, trading at 25 times earnings, are a bit too expensive for most tastes. Darden Restaurants, Ruby Tuesday, Cracker Barrel, McDonald’s, Brinker International and other food chains trade between 12 and 17 times earnings. And the consensus of 15 analysts who follow Texas Roadhouse is that a $27 price is as high as the stock should go in the next 12 months.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or email him at [email protected]. © 2013 Creators.com