One of the downsides of building a holding company conglomerate is that sometimes the stock market doesn't notice how much value is embedded within your enterprise. That seems to be the case with Biglari Holdings (NYSE: BH) today, which has morphed from basically just the owner of burger and shake fast food chain Steak 'n Shake to a company with multiple investments, both public and private.
For some reason equity market investors are not giving it much credit for what it has built thus far. Biglari Holdings today has a market capitalization of $550 million, but most of that value can be ascertained without its crown jewel; Steak 'n Shake, which over the last four years has generated free cash flow of between $40 million and $60 million annually. That asset alone could easily be worth $550 million.
And yet if we dig a bit deeper we can learn that Biglari Holdings also owns 20% of Cracker Barrel (NASDAQ: CBRL), worth $350 million after hitting a new high this week, as well as $51 million worth of a hedge fund run by Sardar Biglari, BH's CEO, as well as $24 million of other investments. In just public market investments alone, BH has amassed a portfolio worth about $425 million, or $300 per share, compared with a share price of around $375.
As a result, the stock market is valuing Steak 'n Shake, a strong, stable business with $700 million in annual sales and about $50 million in annual free cash flow, at a mere $125 million. The sum of the parts story here is extremely compelling, and is likely a result of a less-than-simple corporate structure and a lack of awareness of exactly what Biglari Holdings actually owns. As Sardar Biglari continues to make wise investments over time (Cracker Barrel has been a huge winner thus far), I would not expect the stock to remain this undervalued for much longer.