Cheesecake Factory Inc (CAKE) — While this operator of full-service and casual dining restaurants reported better-than-expected earnings of 68 cents for the first quarter, revenues of $553.7 million fell short of estimates.
Same-store sales growth has also been weak. And a continuation of this trend, plus weaker store traffic, higher labor costs and slower economic growth could hurt the company’s profits going forward.
From a technical perspective, CAKE stock looks weak, and a continued rally may provide a great entry point for short sellers.
On the chart, we can see that after achieving a high near $59 in early August, CAKE stock plunged to a low just above $50 during the Aug. 24 “flash crash.” But buyers came in to halt the decline, and CAKE stock traded in a consolidation range between $50 and $55 during September and October.
That consolidation failed when support broke in late October, and CAKE stock fell to $45 in less than a month’s time.
Shares then consolidated between $45 and $48, appearing to form a bullish saucer. However, in March, they failed to penetrate the August/September consolidation, which was needed to confirm the saucer.
Instead, CAKE stock made a series of lower highs and lower lows. In May, it rallied to its 200-day moving average from a bearish flag, but on Friday, it appeared to again have failed.
Sell CAKE stock short at $51 with a six-month downside target of $40 for a potential gain of more than 20%.
As always, traders should use a stop-loss order with all short sales and be aware that they will be responsible for covering any dividend payments made while they hold shares short. The Cheesecake Factory pays a quarterly dividend of 20 cents per share, for a current forward annual yield of 1.6%, and the next ex-dividend date is expected in early August.