Ruth’s Chris Steak House

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My old friend, high end restaurant with family appeal, and a legendary founder (company web site). I traded it (Nasdaq:RUTH) back in 2005 shortly after its IPO. Obviously with the recession, high end was hurt badly, RUTH was no exception. To make matter worse, RUTH bought a seafood chain in early 2008 using debt. The company changed name to Ruth’s Hospitality Group to reflect the broadening of offerings. The following is a profile video of RUTH.

Valuation calculation done on a napkin:

In normal times a restaurant chain can be sold at revenue. The company revenue (ttm) was about $365 m last 12 months (source: Yahoo Finance), the company has about $150 m long term debt (source: Google finance). This leaves about $215 equity. There are no preferred stocks. Current market cap is about $67 m. So there is about 200% potential (if we assume the company is worth the annual revenue).

The downside: if US consumers continue to hunker down, or eat out at McDonald’s (NYSE:MCD) and Olive Garden (NYSE:DRI) only.

(Update 20Nov09) Just as I have accumulated significant positions, the stock took a dive this afternoon. It appears a big seller sold 1,657,430 shares at $2.64 at 15:10 PM ET (last trading hour). This drove down stock closing price 12% today. Will see.

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