Re: STAR
Terry,
I believe you are correct. Thank you for reminding
me of this stock. I had wanted to track it last
time it was at this level, but forgot. My take:
Lone Star Steakhouse
Operates 3 main chains with 3 price levels,
with lots of room for growth in the upper
two levels if not the bottom level.
In general restaurant stocks have missed
the bull market and many are treading
water. Still, this stock is cheap compared
to its industry:
PE 9.5 vs. 23.7
P/B 1.3 vs. 3.94
PSR 1.3 vs 2.25 (ESR for this company is ~1)
Net Profit Margin 14% vs 10%
No debt vs. TDebt/Equity Avg of 0.69
The company has $3.62/share in cash, so
you get the business for in the high $500
million range. This for a business that
generates $36M in operating cash flow
per quarter in the abscence of leveraged
operations. The present value of these
future cash flows relative to cost of equity
sits around ~$1Billion, even with no
growth. Yet growth is definitely a
possibility given the new venture
into higher-end, $60/customer restaurants.
Hence, I see a company that is
undervalued even if it did not grow
further -- you get the growth for
free and then some if it happens.
No insider sales. It is hard to see
the downside here, but here goes:
1) Management recently repriced
its options to the 18ish level from
higher levels
2) Institutions owned >85% of the
company on 6/30. That is probably
down no thanks to the massive
dump on August 5th that knocked
the shares to this level.
3) There are already 10 analysts following
it, with an average Zacks rating of
2.1. This may be an advantage.
Ken Fisher's Super Stocks book
has helped me understand better
the institutional viewpoint on
fallen angels that have hit a
"glitch." The stock wouldn't be
this low if the institutional
psychology wasn't against it -
a plus from my point of view.
Technically, it is at a support level,
so now would be a good time to
buy. Further, it has basically
hammered out a straight horizontal
line since the fall 3 weeks ago.
This tells me we are at something
of a floor. Lots are bailing, but
lots are buying too.
I'll add this to my portfolio. Thank
you.
Good investing,
Mike |
