Rarely do you find an emerging growth stock trading at more than $400 with a market capitalization of $500 million. This is especially if one considers the company's main activities are in a low margin business. However, Biglari Holdings Inc. (NYSE: BH), is one such company, and in this article we will try to understand some of the unique traits of this stock.
Biglari Holdings Inc. is a company that owns and operates a number of country style restaurants in the United States. As of December 2012, Biglari Holdings Inc. had 414 restaurants under the brand name Steak n Shake and five under Western Sizzlin with about 171 franchised units. In addition, the company provides consulting to private investment funds. Shares of the company are up 60% on a year-on-year basis, and as quoted on June 14, 4:03PM EDT the shares were at $408.17 which is quite impressive. Recent data shows that the company is sitting on $20 million in cash and has long-term debt of $131 million.
Type of Shareholders
There are a number of reasons to explain some anomalies in the stocks of this company. Firstly, one can talk of the high number of insider and institutional owners. Information filed with the Securities and Exchange Commission shows that 23% of Biglari Holdings Inc. is held by company insiders and 71% by institutional and mutual fund owners. These are investment vehicles whose sole purpose is to safeguard wealth for pensioners, endowment funds, and even individuals. These types of investors normally hold stocks for long periods and are satisfied with little returns, provided the money invested is secure. Insider owners behave more like hedge fund managers, because they benefit from an upsurge in the company's stocks.
As a holding company structured similarly along Berkshire Hathaway Inc. (NYSE: BRK.A), the stock performance may not be related to key economic fundamentals. Stock movements are in part as a result of the company's investment strategy. With the company's shares trading at $408.17, it is not possible for the average emerging stock investor to purchase this stock. This affects the relative ease at which the stock can be traded. Analysing the movements of this company's stock, one can see the stock price levelling out as it reaches new levels. This is good for the Institutional investors, as they value stability and gradual appreciation, however it discourages future investors.
Market Capitalization Value Correct?
Biglari Holdings Inc. has a 20% stake in Cracker Barrel (NASDAQ: CBRL) with a current market value of $465. If you combine the market value of this stake to that in the restaurant chain, the current market capitalization of Biglari Holdings Inc. is not feasible. What this tells us is that the company's stocks could be undervalued. The illiquid nature of the stock is one major reason and the other could be that investors value Cracker Barrel more than its parent company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.