Cheesecake Factory stays hot as analysts worry over profits.

DESPITE warnings from several analysts that Cheesecake Factory's stock may be nearing a fall as costs for building and commodities mount, investors appear unfazed. Last Tuesday, following a Sept. 6 Barron's article that detailed slower earnings growth and challenges facing the Calabasas Hills-based company, Cheesecake's stock rose 1.3 percent to close at $41.16 a share.

"It takes time for people to realize what's going on and the risk that's inherent," said Eric Wold, managing director at investment bank Merriman Curhan Ford & Co. in San Francisco. Wold maintains a neutral rating on the stock. "It's been the darling stock of Wall Street and I think people tend to love the company enough and are glossed over by the problems that go on behind the scenes."

In a July 21 report, Wold expressed concern about the shares' valuation prospects due to poor earnings quality, a decline of consensus estimates and increased risk of operating margin pressures throughout this year.

Howard Gordon, senior vice president of business development and marketing for Cheesecake Factory, declined to comment.

Of the analysts who have rated the stock within the last three months, eight maintain a buy rating, while two have put a hold on the stock and one has a sell rating.

"I believe the company can certainly grow to close to 200 Cheesecake Factories and along the way build a nice base of Grand Luxe Cafes," said Sharon Zackfia, an analyst with William Blair & Co. in Chicago. Zackfia, who has an outperform rating on the stock, said she expects operating margins to improve as Cheesecake grows.

"The Cheesecake Factory continues to be the Holy Grail of restaurant concepts and an industry leader in sales with enviable unit-level returns and an excellent management team. Frankly, it's hard to throw any stones at what they've done."