June 23, 2014
Luby’s (LUB), founded in 1947, is multi-branded restaurant that includes Luby’s Cafeteria, Fuddruckers, Cheeseburger in Paradise, and Luby’s Culinary Contract Services. Its 181 restaurants are grouped into traditional cafeterias (94), gourmet hamburger (66), casual dining /bars (19), one upscale fast-serve chicken restaurant, and one seafood restaurant. Lastly, Luby’s is a franchisor for 114 franchised Fuddruckers restaurants. The owners of these franchise units pay royalty revenue.
Late last November, Luby’s stock traded as high as $8.98 but since then it has pulled back 76% and is down 31.3% so far in 2014.
This situation presents an attractive entry point for the following reasons:
• The stock trades at a discount to the company’s break up (book) value;
• 30% of outstanding stock is held by insiders and management, with an additional 46% held by institutional investors;
• Insiders have been increasing their stake—always a positive sign;
• Buildings and land are stated on the books at cost and a significant discount to market value. Over 50% of the company’s properties are company-owned, and Fuddruckers was acquired in bankruptcy at a discount during 2010;
• Luby’s and Fuddruckers restaurants are disproportionately concentrated in Texas, particularly Austin, Houston and San Antonio where the economy and real estate prices are strong. Read More »