Two Half-Baked Restaurant Stock Ideas

I currently own one restaurant stock which should soon be bought out - Champps Entertainment (CMPP)- and I have my ears open for other dining opportunities. Ruby Tuesday (RT) is one that has sold off in the past few days, and if Yahoo Finance has its numbers right, the valuation is 11x earnings, 5.9x EBITDA, 4.6x operating cashflow, and 0.57x sales. I'd have to do more work on RT to see if there's a larger investment story.

Another half-baked idea is Fatburger, which is owned by Fog Cutter Capital Group (FCCG.OB). Fatburger was brought to my attention by this article from Forbes. The CEO was in jail, the board is ineffective, there's risk of default, and there's limited liquidity with a market cap of only $12 million - but if you can swallow all this, you can own a fantastic brand with big growth plans.

With 88 locations, Fatburger is best known in LA where it serves burgers and shakes alongside free jukebox music. It's so hot that it's popular among celebrities to have their own Fatburger. Current and past owners include Magic Johnson, Queen Latifah, and Montel Williams. Notorious BIG has even rapped about the restaurant. This video of celebrities talking about their love for Fatburger gives an appreciation for the cult following. The growth plans are huge: the company has agreements for 217 new franchise locations.

Besides Fatburger, Fog Cutter owns some other assets, including real estate and an interest in a software company. Regarding the real estate, the 10Q reports on, "ownership or leasehold interests in 72 freestanding retail buildings located throughout the United States and two apartment buildings located in Barcelona, Spain." I haven't yet done the valuation work so I don't know what this real estate is worth, but it could total a pretty penny.

So there you have it -- not the full story, but the beginning of an investment thesis. A company with a shady past that might still be a buy because of the strength of its brand, growth plans, and other assets it owns. A lot more research is needed for me to move from interesting idea to a buy for my account, but this is where I start.

Oh, and here's the menu.