Shares of Cracker Barrel Old Country Store (NASDAQ: CBRL) are sliding by as much as 9.5% in the pre-market hours of Tuesday morning; the initially adverse reactions demonstrated in the stock price stem from the company's first quarter 2023 earnings results. Investors can find a few key metrics showing that the actual results are not as bad as the market is making them seem; as always, short-term traders are clicking the 'sell' button at faster rates due to 'zoomed in' perspective expectations. Long-term investors can zoom out and put today's earnings into perspective.

As the company has performed right in line with one of its most notable competitors, The Cheesecake Factory (NASDAQ: CAKE), markets and analysts can start looking at other comparable operators to determine where the valuation gaps are showing. Comparing Cracker Barrel's performance against another folklore-themed restaurant, Texas Roadhouse (NASDAQ: TXRH), may provide further insight supporting the view that Cracker Barrel may be the value play in this small universe of themed restaurants.

Everything Perspective

Texas Roadhouse has outperformed Cracker Barrel's stock by 34.8% during the past twelve months. However, valuation metrics will tell a slightly different side to this dynamic. TXRH stock currently sells for a 26.7x price-to-earnings multiple, whereas CBRL can be acquired today for only 20.3x. The relative comparison makes Cracker Barrel one of the cheapest names in the space and another commonly followed valuation metric that will mark the lowest since 2014. Cracker Barrel's price-to-book value ratio stands at 4.4x, the cheapest since 2014's 4.5x ratio (ex., COVID-19 sell-offs). 

Another viewpoint supporting the idea that CBRL stock is probably on the cheaper end of the spectrum is its current dividend yield. Cracker Barrel's dividend, as of the date of the earnings press release, has been approved by the board to be of a $1.30 per share quarterly payout. Annualizing this quarterly payout would produce a total yield of nearly 6%, making it the highest dividend in over five years. Not only will this new yield mark a multi-year high, but it also gives into the possibility of undervaluation, as in these high-yield cases, either the stock price must rise or the dividend payout fall, considering the board has just approved the new payout, it would seem the former needs to occur here.

Just as every industry carries its specific set of key performance indicators (KPIs), the restaurant and retail industry heavily relies on comparable sales growth and decline rates, where analysts and investors come together to measure the health of the business in question. Cracker Barrel's similar sales saw a massive spike in the first quarter of 2022 as the COVID-19 effects subsided. In-person dining became the norm again, reporting 25.9% comparable sales growth puts today's 7.4% to shame.

Upside Potential 

Despite today's reported comparable sales growth being nearly a third of that achieved a year prior, 7.4% is still well above the historical norm. Besides, there is a critical piece of information that many still need to receive by comparing the year-on-year earnings per share decline of 47%. The company reported diluted earnings per share at $0.63, which would have been $1.21 on an adjusted basis, the adjustment being the true pillar to close the case for CBRL's upside potential. 

Management reported a $13.9 million non-recurring and non-core impairment charge and an approximate $3.2 million store-closure demand. Investors can quickly determine these as 'non-core' by asking, 'Is Cracker Barrel in the business of closing locations?'. Adding back these charges, which will yield the adjusted figures reported, can give investors a better sense of what happened in Cracker Barrel's financials during the year. 

On an adjusted basis, achieving $1.21 earnings per share in the quarter would bring the last twelve months' EPS figure to $4.81. By this adjusted measure, CBRL stock would sell for an 18.0x P/E ratio, providing an even more significant discount by historical and industry standards. Cracker Barrel analyst ratings are pointing to a $118 median price target today, representing a 35.6% upside potential considering the pre-market sell-off effects. Investors can have the opportunity to acquire the cheaper alternative in the sector, with significant upside potential and a 6% dividend yield to compensate for any bumps that may come on the road.