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• CAKE 100% Rate It

Fundamentals play a big role in a stock's fate.

A stock chart is used mostly for timing entries and exits. Without strong fundamentals, an investor has no reason to buy a stock.

Cheesecake Factory's ( CAKE ) fundamentals aren't as good as they once were. However, the numbers are improving in some respects.

In the past three years, Cheesecake grew earnings 27%, 33% and 15%. Revenue growth was 0%, 4% and 6%. The Street expects 16% EPS growth this year on a 4% revenue gain.

The light sales growth became the trend after 2005, which was the last year Cheesecake Factory grew sales in the 20% neighborhood.

What happened?

Blame the U.S. recession and a sluggish recovery.

In 2005-07, times were good. Cheesecake Factory was opening 18 to 21 new units each year. But the small-cap company added only seven restaurants in 2008, one in 2009, three in 2010 and seven last year. The company expects to open seven or eight new units this year.

Without an economy that can back expansion, Cheesecake's chances to grow sales are limited.

Yet, the company is improving. Pretax margin has increased in each of the past three years.

Return on equity was 16.8% last year, the best in at least nine years.

And on July 23, Cheesecake's board approved the initiation of a dividend. The annualized yield is 1.4%.

The chart also looks promising. Cheesecake is shaping a tight base-on-base pattern. The second base is 5% deep and in its sixth week -- long enough to qualify as a flat base.

The base-on-base designation means the previous breakout did not advance at least 20%, and the current pattern is built on top of the previous consolidation.

Sometimes the base on base develops when the overall market is giving insufficient support to breakouts. A stock will then consolidate after a short gain. If the market turns more bullish, then the stock can break out of the base on base and enjoy a second shot at success.

On Wednesday, Cheesecake edged above the 34.30 buy point in mediocre volume, making for a lackluster breakout attempt.

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