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If It's Tuesday It Must Be Ruby's

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January 02, 2010 – Comments (5) | RELATED TICKERS: RT

 

We knew it was Tuesday, and the sign on the door said Ruby's, so we figured that this was the place the e-mail wanted us to check-out. Who knew it wasn't Ruby Tuesday, Inc. (NYSE: RT)? That is until we opened the door and looked around.

Basis
Financial information contained in this report, is based on the company's most recent Form 10-K filing for fiscal year ending June 2, 2009, as filed with the Securities and Exchange Commission on August 3, 2009.

What They Do
Ruby Tuesday, Inc. develops, operates and franchises casual dining restaurants in the United States, Puerto Rico, Guam, and 13 other countries and regions under the Ruby Tuesday brand. The company also owns and operates two Wok Hay restaurants.

At the end of fiscal 2009, the company owned and operated 672 Ruby Tuesday restaurants primarily in the Northeast, Southeast, Mid-Atlantic and Midwest of the United States.

In addition, there were 229 domestic and international franchise restaurants located in 27 states primarily outside the company’s existing markets primarily the Western United States and portions of the Midwest and Northeast and in the Asia Pacific Region, India, Middle East, Puerto Rico, Guam, Canada, Iceland, Eastern Europe, and Central and South America.

The company also had 49 franchisees, consisting of 13 franchise partnerships, 16 traditional domestic and 20 traditional international franchisees, and the franchise partnerships operated 119 restaurants and traditional franchisees operated 54 domestic and 56 international restaurants.

Ruby Tuesday restaurants serve American food with a variety of appetizers, handcrafted burgers, a garden bar, which offers up to 46 items, steaks, fresh chicken, crab cakes, salmon, tilapia, fork-tender and ribs. Burger choices include items, such as beef, bison, turkey, chicken, and crab.

It also offers its RubyTueGo curbside service and delivered meals catering program for businesses, organizations, and group events at both company owned and franchised restaurants.

Short-Term Investment
Looking at the MACD trend line for the stock, it appears to us that the stock has recently entered an up trend.

With a recent close of $7.20, and first resistance at $9.38, an approximate 30% upward delta as compared to first support at $6.90, a 4% downward delta, we believe the stock is setting up for a very nice short-term trade.

Long-Term (5 Year Hold) Investment
We are not as impressed with the company long-term as we are short-term. Simply put, the basic ratios we rely on, the current ratio, the quick ratio, and the cash ratio, are well below what we consider investment quality.

The company pays an average interest rate of slightly more than 7% on its $9.34 per share in debt, has a tangible book value of $7.89, an equity value of ($1.96), and pays no dividend.

Admittedly we are very big fans of the company's $4.23 per share of free cash flow, but that is the only positive we can find, longer term.

We believe that fiscal 2009 will be the high water mark for the company, and have valued the company in the $23-$26 per share range, based on that anticipated high water mark.

But considering the current economic instability, the company's debt, and the poor ratio performance, we simply are not interested in the stock as a long-term investment at this time.

Instead, we think a Tuesday evening at Ruby's would be a helluva lot more fun.

Wax

For the Ruby Tuesday Raw Value worksheet, please click here.

5 Comments – Post Your Own

#1) On January 02, 2010 at 10:04 PM, dragonLZ (99.36) wrote:

I think you are wrong about this stock.

My 6-month target is at least $9 (25% gain), 12 month target $15 (108% gain). 

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#2) On January 02, 2010 at 10:51 PM, RUMBLINstrflame (< 20) wrote:

I pretty much agree with your take on RT.  One question:

"an equity value of ($1.96)"

What does this metric mean?  Obviously it is not shareholder equity (equivalent to book/tangible book).

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#3) On January 03, 2010 at 7:19 AM, wax (96.67) wrote:

dragon;

I hope you are right about the stock, and I can see your 6 month target in the $9 to $10 range.

But when you start reading things about the company from the newswires, and looking at the company's financial information, I just don't see a lot in the way of price growth over the next 12 months.

Best of luck with the stock.

Wax 

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#4) On January 03, 2010 at 7:28 AM, wax (96.67) wrote:

RUMBLIN;

Equity value is the exact opposite of Enterprise Value and it is determined by adding the market cap and the cash and subtracting the debt.

Enterprise value is determined by adding the market cap and the debt and subtracting the cash, which for RT ends up at $16.36 per share.

So for $7.20 a share, the recent closing price of the stock, what are you getting?

From an equity value point of view, basically $0.19 in cash. From an enterprise value point of view, $9.34 worth of debt.

Which is one of the reasons, the stock doesn't work for me.

Hope this helps.

Wax

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#5) On March 09, 2010 at 8:21 PM, dragonLZ (99.36) wrote:

It's Tuesday and Ruby's was up 9% today.

Currently, RT is at $9.88.

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