The Cheesecake Factory Incorporated (Nasdaq: CAKE) has climbed about 131% in 2026, from $50.48 at the end of 2025 to $116.43 at the October 20, 2026 close. On October 20, long/short fund manager Sean Westropp of Deep Sail Capital called the stock a short at about 25 times next-twelve-months earnings, arguing that restaurant valuations run in cycles. The first test is third-quarter results, due after the close on October 27, 2026.
This is journalism and commentary, not investment advice. We hold no position unless stated.
Key facts
- Ticker and exchange: The Cheesecake Factory Incorporated, CAKE, Nasdaq Global Select Market.
- Situation type: contrarian short on a casual-dining stock after a large rerating.
- The call: Deep Sail Capital (@DeepSailCapital) posted on October 20, 2026 that Cheesecake Factory at 25x NTM EPS is a short.
- Price: $116.43 at the October 20, 2026 close, up about 131% from $50.48 on December 31, 2025.
- Momentum: comparable sales at Cheesecake Factory restaurants rose 5.8% in the quarter ended June 30, 2026, with traffic up 2.7%.
- Catalyst: third-quarter fiscal 2026 results after the market close on October 27, 2026.
- Main risk to the short: earnings keep rising fast enough to make 25x look cheap.
Is Cheesecake Factory a good bet right now?
The bull case is real momentum. Second-quarter revenue rose 7.7% to $1,029.6 million and adjusted EPS was $1.44, per the Q2 2026 release.
The bear case is price. A Seeking Alpha analysis from September 8, 2026 cited Wall Street estimates of $4.50 of 2026 EPS and $4.97 for 2027. At $116.43 that is about 25.9 times 2026 and 23.4 times 2027 estimates, by our math.
Why are investors bearish on Cheesecake Factory?
- The multiple has doubled with the stock. The same company that bought back 158,600 shares for $9.3 million in the second quarter, about $58.64 a share by our math, now trades near twice that price.
- Not every brand is growing. North Italia comparable sales fell about 3% in the second quarter.
- Comps may have had help. Westropp suspects recent traffic was boosted by World Cup visitors this summer.
- Analysts flagged valuation. Northcoast analyst Jim Sanderson cut the stock to Neutral on June 15, 2026, citing valuation.
Who's making this call and why?
Sean Westropp runs Deep Sail Capital, a long/short fund, and posts as @DeepSailCapital. On October 20, 2026 he wrote: "I love a good restaurant that gets to 25x NTM EPS." He added: "As a short."
In a follow-up reply, Westropp said restaurant valuations are "very cyclical," recalling a period when fast-casual chains traded at 55 times earnings. In another reply, he said a recent visit felt busy but "very well used and kind of dirty," and that recent comps were likely World Cup related.
Track record. In our tracking, Deep Sail Capital is 13-12 (a .520 win rate) on 25 calls scored at 180 days against the S&P 500, with an average edge of +8.9 percentage points, ranked 6th on the career table. Its shorts have done better than its longs, 9-4 versus 4-8, though its last 10 scored calls went 2-8. See the scoreboard.
Other voices on valuation: Northcoast's June downgrade and the September Seeking Alpha downgrade to neutral both said the rerating had taken out the value case. Neither is a short call.
Who disagrees?
- A former short. BeenThereCap, a self-described semi-retired hedge fund founder, replied that he "lost SO MUCH MONEY shorting $CAKE" and other restaurants at 25x in 2009-2010. His question: are margins below average and likely to cycle back up?
- Margins are rising. Income from operations was 7.6% of revenue in the second quarter of 2026, up from 6.8% a year earlier.
- Momentum investors. Investor's Business Daily writer Juan Carlos Arancibia wrote on October 14, 2026 that Cheesecake Factory "has elevated itself to the No. 1 stock in the restaurant industry."
- Packed dining rooms. Autumn Capital told Westropp a large suburban location was "packed to the brim beyond belief."
- Growth runway. Cheesecake Factory plans to open as many as 26 new restaurants in fiscal 2026.
What are the key facts to verify?
- The Q2 2026 release for comps, margins, buybacks and the $575 million of 2.00% convertible notes due 2030.
- The Q3 date announcement for the October 27, 2026 timing.
- Current consensus estimates, which may have moved since September 8, 2026.
What would prove it right or wrong?
Right: third-quarter comps slow once World Cup traffic laps, North Italia keeps shrinking, margins stall, or the multiple falls back toward the low 20s.
Wrong: comps stay above 5%, estimates for 2027 rise past $4.97, and Cheesecake Factory grows into the multiple, as BeenThereCap warns happened in 2009-2010.
This is journalism and commentary, not investment advice. We hold no position unless stated.