Everybody loves CAKE! After the Cheesecake Factory (NYSE: CAKE) missed their earnings estimate by a cent on November 2nd, there is more reason than ever to get in on this golden stock. Investors saw this shortcoming and completely overreacted by selling this stock down far below their potential. Where other restaurants felt the effects of higher food costs and slower consumer spending, the Cheesecake Factory produced a revenue growth of 15.4% and an outstanding increase in sales. We are seeing CAKE take over the restaurant market, with Brinker (NYSE: EAT) and Ruby Tuesday (NYSE: RT) experiencing flat or dropping sales, and being boosted just yesterday (November 5th) back to a “Buy” rating. When earnings-per-share grows by 13.4% in a bad quarter, we have a winner!

After running a discounted-cash-flow valuation on Cheesecake Factory, I have settled on a target price of $31.25. With this in mind, I’d look to buy the stock at $20-$24, which we have reached today at $22.19. Download my excel valuation here. Once the stock breaks out of its moving-average funk, look to pounce on it (or just pick it up now).

But “why is the Cheesecake Factory such a good company to own” you ask? Well first of all they are starting to dominate the restaurant industry. Just last month, Cheesecake Factory said it would open 17 restaurants in 2008. The company opened 21 in 2007. Industry analyst Christopher O’Cull recently upgraded the stock form “neutral” to “buy.” His reasoning: “though inauspicious macroeconomic factors have weakened overall casual dining margin and overall profitability during the past year, on a relative basis The Cheesecake Factory has clearly outperformed the casual dining segment.” This looks solid for us CAKE owners. This and the fact that the upper management has done a superb job over the last decade turning 15%+ growth margins on the norm makes me want in.

Let me give it to you straight. Don’t expect the restaurant biz to turn out amazing growth next year. What makes CAKE interesting is the fact that they will probably dominate the market and be the only company producing solid numbers in the upcoming year. Their expansion is on track and management has plans to improve operating margins by increasing leverage and lowering pre-opening costs. With analysts’ target price of $28.00 average (conservative), this stock looks poised to make a run soon.

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