LONESTAR STEAKHOUSE Message Board

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Non-Tech : LONESTAR STEAKHOUSE

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To: Dorothy Simpson who wrote (18)	11/2/1996 3:16:00 PM
From: Karl Radke	of 20

Lone Star is one of the most undervalued stocks on the NASDAQ right now. 5-year growth rate of 28%. P/e of 17. Historical p/e around 26-28. 1.45 EPS last 12 months. FY 1997 EPS estimated to be 2.06. Have 170+ restaurants, will open 50+ next year. Highest gross margins in industry at 21.4%, next closest restaurant at 14%. Super management - former Pizza Hut big-wig. No appreciable insider selling. Zero long-term debt. Price brought way down by overreaction to minimal decline of 2.8% in gross margins last quarter plus worries over wages with minimum wage bill, increase in beef prices. STAR upped menu prices 1.5% - likely will be received without a problem. Beef prices stabilized til March 1997 due to futures contract purchased by STAR in Sept (or August - not sure). Future stores to be gained through acqusitition, thus lowering start-up costs. Upscale steak chains started in Texas and Australia doing very well. All in all - STAR looks very undervalued to me. 28% 5-year growth rate multiplied by 2.06 gives a fair value of mid-50's. Fair value this year was 1.45 x 28 = ~42. We have value created right before our eyes with this stock. Time to seize the moment. Any other comments are appreciated.

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