Famous Dave's (NASDAQ:DAVE) is a BBQ chain that operates more than 170 restaurants across 37 states. The company opened 13 franchises in 2010. After eating at one of the restaurants, I decided to take a look at the stock and was a little surprised when I seen that it was trading at $10.00, an apparent discount for value investors! I needed to be sure that it is trading at a discount though, so I had to identify similar companies and see what their fundamentals looked like.
To identify Famous Dave’s peers we will need to screen for companies that offer a similar service and if possible are a similar size. Red Robin (NASDAQ:RRGB), O’Charley’s Inc. (NASDAQ:CHUX) and Ruby Tuesdays Inc. (NYSE:RT) will serve as the basis. The companies are all larger than Famous Dave’s with market caps over $100 million, while Famous Dave’s holds in at $80 million.
The fundamentals of each of the peers have been calculated and then the average of the three are taken to determine the peers' numbers.
From a value standpoint Famous Dave’s should be trading at $14.24 that is a 4% gain from its current price.
Judging from profitability analysis, the company is underperforming but the difference is really rather small at 0.05% and if you look at the individual ratios for, say Red Robin, you will find that it only has a 1.78% margin. Basically this analysis indicates that the company is on par.
Now we need to look at the financial ratios to determine the financial strength of the company. Typically a current and quick ratio under 1 indicates a problem, but for the restaurant industry, at least among the three peers, it is typical to be under 1. So, the only negative indicator for Famous Dave’s is the total debt to equity, which is slightly higher than its peers.
The total debt to equity basically means that for every dollar of equity Famous Dave’s has it owes $00.88
Looking at the management ratios we see this is where Famous Dave’s starts to shine.
The management is doing great things at the company. Famous Dave’s generates 1% higher return on their assets and their equity and a higher return on investments. This is sometimes regarded as the strongest analysis of a profitable company as good management often means strong companies and strong companies means better investments.
Famous Dave’s is a buy under $10.30. It provides stronger management than its peers and is a growing company. It is listening to its customers by offering online ordering with a state of the art system. It recently won the People’s Choice for best ribs at the Great American Rib Cook-off showing that they do, indeed, have a strong base of clients. Famous Dave’s is doing everything right and listening to the customer. This company won’t be undervalued long.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DAVE over the next 72 hours.