Texas Roadhouse Faces Challenges Amid Rising Beef Prices

This summer, Texas Roadhouse encountered some serious hurdles as beef prices surged. For steakhouse chains that pride themselves on affordable, tasty meals, it’s been a tough situation. Yet, there are signs of relief in the cattle futures market, which has many starting to look positively at Texas Roadhouse stocks again. I even jumped back in this week, my first move in a month. Back in May, we bought back all 80 shares we had previously sold at higher prices.

With cattle prices starting to fluctuate in September, it seemed like a good moment for some technical analysis to assess how these price movements impact Texas Roadhouse stocks. Looking at the stock’s performance over the last year (marked in blue), it’s obvious we’re at a significant buying threshold. The stock’s current trading price mirrors that of April, not long after President Trump’s tariff announcements.

The tariff news was unsettling, creating panic about the U.S. economy’s future, which led to further declines in stock prices. However, Texas Roadhouse’s relative strength index (RSI), a momentum measurement that helps traders gauge extremes, is now just below the 30 mark. Anything over 70 suggests excessive buying, while a reading under 30 indicates overselling. Interestingly, this level is similar to the stock’s position after that initial tariff news.

It’s essential to note that trading near previous lows doesn’t mean the stock will only go down. Some bearish traders focus on patterns like the “death cross,” where a stock’s short-term moving average dips below the long-term average. But honestly? I think the fundamentals are really what matter, and right now, the headwinds for Texas Roadhouse are beginning to feel more like tailwinds.

The U.S. economy has shown surprising resilience, keeping demand for dining out relatively steady. Consumer behavior needs watching, sure, but it hasn’t been too bad lately. Scharf mentioned on CNBC that their data remains stable, and consumer spending is consistent year-over-year across almost all income levels. When Texas Roadhouse last reported, demand was looking solid, with same-store sales growing by 5.8% during the quarter’s opening weeks.

The company has been feeling pressure on the supply side due to rising beef prices, impacting their margins and causing them to adjust inflation estimates for the year. However, as we look at recent trends in live cattle futures, we see a shift. The charts over the past few days indicate an uptick in trading volume, even though some might argue the overall trend is still downward.

But let’s not forget: live cattle are commodities where prices depend on what buyers are willing to pay. This is especially true for futures, where prices reflect anticipations rather than current market worth. While beef prices may rise, how much consumers are willing to pay for their steaks and burgers remains a crucial factor. It’s all about perception; consumers might expect to pay more over time, but that doesn’t mean they’ll do it overnight, especially when alternatives exist.

As we foresee cattle prices potentially decreasing, we might see a resurgence in interest for Texas Roadhouse stocks. Lower beef prices could help broaden profit margins again. There’s a notable correlation we’ve observed: when cattle prices increase, Texas Roadhouse’s stock tends to struggle. An analysis showed a strong negative correlation of -0.83 between Texas Roadhouse stock prices and live cattle futures since mid-May. Essentially, a rise in cattle prices has often resulted in a drop in their stock values.

Both cattle prices and Texas Roadhouse stocks have seen downturns lately. This lag isn’t unusual; it often takes time for investors to grasp changes in market dynamics. Although Texas Roadhouse’s financial performance won’t cause immediate price drops, if our predictions about cattle prices hold, we expect to see a similar rebound for Texas Roadhouse.

Finally, there’s reason for optimism regarding evaluations. The stock currently sits at around 23 times projected revenue, marking its most affordable level since January 2024. Should it drop to above 21 times revenue, there’s potential for further declines. The tariff landscape appears less daunting now, and cattle prices are starting to show signs of movement. Personally, I think the range between the current price and $153 is a solid area to consider building a position.