Steak 'n Shake's $300 Steakburger

Includes: BH, FMMH
by: Stockmanmarc

No, the steakburgers are not really $300. Actually, you can get a double steakburger with fries for a very reasonable $4. The $300 price tag I'm referring to is the new 1-20 reverse stock split set for Steak 'n Shake (SNS).

Starting Monday the 21st of December, 2009, Steak 'n Shake will trade in the $250-$300 per share range. Steak 'n Shake just released its full year and fourth quarter results for 2009 earlier in the week (details here). In his annual letter to share holders, Steak 'n Shake chairman Sardar Biglari pointed out that he will focus Steak n Shake's future growth on the purchase of other equities other than just those in the restaurant business.

In a nutshell, this is no longer just a hamburger chain but a investment holding company.

As I mentioned in my last update, Steak 'n Shake has taken a 10% stake in Fremont Michigan Insuracorp (OTC:FMMH) a small insurance company located in the town of Fremont, Michagan. Biglari will look for undervalued companies which he will purchase through his new investment vehicle, Steak 'n Shake. As stated in his annual shareholder letter, the company's leadership "aim to grow long-term cash flows, not reported earnings. Their view on reported earnings is that they are not real until converted to cash."

Wall Street always focuses on earnings and this is what you often see in the media. In the long run, a company must earn money, however the focus should be on free cash flow. Earnings can be manipulated and often can show a distorted picture while cash flow is more transparent. It will be interesting to see the transformation take place over the coming quarters and next few years.

Disclosure: Author currently long SNS