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Nathan's Famous (NASDAQ:NATH) has just reported second quarter results from its 2008 fiscal year. Revenue from continuing operations grew 12.2%, net income from continuing operations grew 20.1%, and diluted EPS from continuing operations grew 12.5%.

My previous valuations of the company have tended to show that the stock has generally been priced at a level which reflects an assumption of little or no future growth. To see if this is still the case, we note that the price currently stands at 16.69 and the market cap is 103M. With cash and marketable securities totaling 31.7M and no debt, the company sports an enterprise value of 71.3M. With TTM revenue of 48.4M, we have an enterprise-value-to-revenue ratio of 1.5. With TTM diluted EPS (from continuing operations) of .88, we have a PE of 19.

TTM owner earnings, computed as net income from continuing operations + D&A – capex, stands at 6.2M which gives an enterprise-value-to-owner-earnings ratio of 11.5. Even a conservative estimate of a 12% growth rate in net income from continuing operations yields a value of (EV/OE)/G of just under 1. Under this metric, the stock appears attractively priced.

An assumption of 12% growth over the next five years, 3% terminal growth, and a discount rate of 11% produces a fair value of 23.83. The stock is currently trading at a 30% discount to this fair value. A reverse DCF calculation shows that the stock is still priced under the assumption of no growth.

Disclosure: Author has a long position in NATH

Source: Nathan's Famous: Still a Bargain