# Cheesecake Factory (CAKE): A Short Case at 25x Forward Earnings After a 131% Run > Cheesecake Factory has more than doubled in 2026, closing at $116.43 on October 20. Long/short fund manager Sean Westropp says a restaurant at 25 times next-year earnings is a short. We check the comps, the analyst estimates, the bulls who disagree and the October 27 earnings test. By MCAFax · Published October 21, 2026 Section: Markets & Main Street › From Wall Street · Series: Market Calls, Investigated (https://mcafax.com/notebook/series/market-calls-investigated) Canonical: https://mcafax.com/notebook/cake-cheesecake-factory-25x-forward-earnings-short-case Source: MCAFax, The Broker's Notebook (https://mcafax.com/notebook). MCAFax is not a lender or a law firm. --- 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](https://investors.thecheesecakefactory.com/news-and-events/news-releases/news-release-details/2026/The-Cheesecake-Factory-Reports-Results-for-Second-Quarter-of-Fiscal-2026/default.aspx). The bear case is price. A [Seeking Alpha analysis](https://seekingalpha.com/article/4943965-cheesecake-factory-excellent-comps-downgrading-on-valuation) 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](https://www.tipranks.com/news/the-fly/cheesecake-factory-downgraded-to-neutral-from-buy-at-northcoast-thefly-news) 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](https://x.com/DeepSailCapital/status/2112616686285160526): "I love a good restaurant that gets to 25x NTM EPS." He added: "As a short." In a [follow-up reply](https://x.com/DeepSailCapital/status/2112629555970060765), Westropp said restaurant valuations are "very cyclical," recalling a period when fast-casual chains traded at 55 times earnings. In [another reply](https://x.com/DeepSailCapital/status/2112728051775688822), 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](https://mcafax.com/notebook/market-calls-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](https://x.com/BeenThereCap/status/2112625452980560337) 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](https://x.com/IBD_JArancibia/status/2110425963989537004) 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](https://x.com/AutumnCapital/status/2112719532993503580) 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](https://investors.thecheesecakefactory.com/news-and-events/news-releases/news-release-details/2026/The-Cheesecake-Factory-Reports-Results-for-Second-Quarter-of-Fiscal-2026/default.aspx) for comps, margins, buybacks and the $575 million of 2.00% convertible notes due 2030. - The [Q3 date announcement](https://www.investors.thecheesecakefactory.com/news-and-events/news-releases/news-release-details/2026/The-Cheesecake-Factory-to-Webcast-Third-Quarter-Fiscal-2026-Earnings-Conference-Call-on-October-27-2026/default.aspx) 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.* ## Questions readers ask **What does The Cheesecake Factory (CAKE) do?** The Cheesecake Factory Incorporated (Nasdaq: CAKE) runs full-service restaurants, including 216 Cheesecake Factory locations, 51 North Italia restaurants and other Fox Restaurant Concepts brands such as Flower Child, as of June 30, 2026. Cheesecake Factory reported second-quarter 2026 revenue of $1,029.6 million. **What is the short call on Cheesecake Factory stock?** On October 20, 2026, Sean Westropp of Deep Sail Capital posted that Cheesecake Factory at about 25 times next-twelve-months EPS is a short. He argued that restaurant valuations are cyclical and that recent comps were likely helped by World Cup traffic. **Who is making the Cheesecake Factory short call?** Sean Westropp runs Deep Sail Capital, a long/short fund, and posts as @DeepSailCapital. In our tracking, Deep Sail Capital is 13-12 on 25 calls scored at 180 days against the S&P 500, with an average edge of +8.9 percentage points, and 9-4 on shorts. **How much has Cheesecake Factory (CAKE) stock risen in 2026?** Cheesecake Factory closed at $116.43 on October 20, 2026, up about 131% from $50.48 on December 31, 2025. In the second quarter of 2026, Cheesecake Factory bought back 158,600 shares for $9.3 million, or about $58.64 a share. **Is Cheesecake Factory stock a good bet right now?** The case for Cheesecake Factory is strong momentum, with 5.8% comparable sales growth and rising margins in the second quarter of 2026. The case against is valuation, about 25.9 times 2026 and 23.4 times 2027 EPS estimates cited in September, by our math. This is not a recommendation either way. **What is the bull case for Cheesecake Factory (CAKE)?** Bulls point to Cheesecake Factory comps beating the casual dining industry, traffic up 2.7% in the second quarter of 2026, and operating margin up to 7.6% from 6.8%. Cheesecake Factory also plans as many as 26 new restaurants in fiscal 2026. **What is the bear case for Cheesecake Factory stock?** Bears say Cheesecake Factory now trades at a premium multiple after more than doubling, North Italia comps fell about 3% in the second quarter of 2026, and summer traffic may have had a World Cup boost. Northcoast downgraded Cheesecake Factory to Neutral on valuation in June 2026. **When does Cheesecake Factory report third-quarter 2026 earnings?** Cheesecake Factory will report third-quarter fiscal 2026 results after the market close on Tuesday, October 27, 2026, with a conference call at 2:00 p.m. Pacific Time. That report is the first test of the short case. **Who disagrees with shorting Cheesecake Factory?** BeenThereCap, a self-described semi-retired hedge fund founder, said he lost heavily shorting Cheesecake Factory at 25 times earnings in 2009-2010. Investor's Business Daily writer Juan Carlos Arancibia called Cheesecake Factory the No. 1 stock in the restaurant industry on October 14, 2026. **What would prove the Cheesecake Factory short right or wrong?** The short would look right if Cheesecake Factory comps slow, North Italia keeps shrinking or the multiple contracts. It would look wrong if comps stay above 5% and 2027 estimates rise past $4.97 so Cheesecake Factory grows into its valuation.