What's Hot in Restaurant Stocks?

“Right now the restaurant space is absolutely on fire, especially the small- to mid-cap names that have plenty of room to expand,” Cramer said Friday. “As the economy bounces back, these restaurant stocks are bouncing along with it, right up to their 52-week highs.”

During “Mad Money,” Cramer examined three speculative stocks—Cheesecake Factory , BJ’s Restaurants and Texas Roadhouse —against the metrics that matter most for this space: store growth, operating numbers, market sentiment and valuation.

BJ’s was the clear winner. The company plans to open 12 or 13 new locations in 2011 on top of the 102 it should have by the end of this year. That’s 12-percent store growth, a noticeable jump from the 4.6 percent and 6 percent expected by Cheesecake Factory and Texas Roadhouse, respectively.

In terms of operating metrics, BJ’s wins here, too. Now, when we say operating metrics, we mean same-store sales, margins and cost controls, the latter a good measure of how well management is executing. And BJ’s finished ahead in the same-store sales race with a 6.7-percent jump last quarter, compared to 2.8 percent and 4.3 percent for CAKE and TXRH, respectively. BJ’s also boasted higher profitability than the other two, though the one figure where it lagged the others was in cost controls. BJ’s is expecting 2 percent to 4 percent raw-cost inflation next year, while Cheesecake Factory and Texas Roadhouse have most of their raw costs locked in already.

And finally, what does the market think of these three? There’s heavy short interest in all of them, but the difference is that BJ’s has beat the shorts before. The company’s strong earnings back on Oct. 22 forced a short squeeze that sent the stock higher. And there might be a similar move if one of the 10 analysts, of the 15 that cover the stock, that have a “hold” rating on BJ's change their call to a “buy.”

Cramer admitted that BJ’s, trading at 40 times 2011 earnings with a 23-percent growth rate, was by far the most expensive stock here. But he thinks it’s worth every penny. BJ’s most definitely deserves its premium.

“BJ’s is clearly the better company,” Cramer said. “Don’t let the run-up in this one scare you. They have proven the naysayers wrong over and over, and I think they’ll keep on doing it for a while.”

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