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Ruby Tuesday, Inc. Message Board

  • etrade2000 etrade2000 Sep 18, 2009 1:01 PM Flag

    if you can't beat them, join them

    I was short RT with put options a few month ago.
    I lost money on that trade. Bad trade. RT
    broke out. I'm long this stock.

    If you can't beat them, join them.

    This is a short term trade BTW. Long term, I'm
    bearish on all restaurants.


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    • I'm curious about your thinking on restaurants. My feeling (not analysis) is they should do well as the economy gets back on track and as employment slowly picks up.

      • 1 Reply to davidgarethl
      • I'm assuming you are directing your question to me. If not, disregard. I'd say it's fairly obvious that I think restaurants will do fine in a recovery. I am very pregnant RT, CPKI, and also own a little lunch shop called Cosi (COSI) that is trading as if it is going bankrupt...not unlike RT did in March. I'm applying lessons I've learned in RT, and hoping COSI can get to $2-$3. I also like Texas Roadhouse, but I do not own shares currently. I'm a student of history, and owning restaurants in 1) expansion mode, and 2) coming out of a recession have been good bets. What makes me even more optimistic about restaurants in this downturn is the prevailing negativity just about everyone has. I remember in March being at an investment banking conference where the analyst (who covers RT, by the way) postulated that 1 in 3 restaurants will go belly up. I laughed...he's been wrong on RT, by the way. You don't go belly up when you are well capitalized and/or have strong cash flow. The restaurants that likely WILL NOT make it will be the mom and pops, sadly, because most don't have financing options and must run things out of operating cash flow. You know, the old fashioned way. That won't work, and so I think the restaurant industry will contract, but I think it will by and large be a positive for public operators. Unless you have a real hot dining concept, you are in trouble in the private realm.

        Frankly, I do still think RT could be a $20 stock in 2-3 years...maybe sooner. I do not think it will get back to $30 anytime soon...there is a portion of its former customer base that will permanently change its spending habits (i.e., paying down debt vs dining out), so getting back to $30 will take a while. That said, I actually like the RT concept/restaurant design, and don't think the food is any better or worse than Chilis, Applebees, etc., so I might be a bit pessimistic there.

        Right now, RT trades for about 5.4x current year cash flow estimates, and that means you are buying RT for an 18-19% yield. Most folks have a cost of capital in the 12% range...some higher. Good credits can get cheap debt...and that will improve. Based on in place cash flows, you could easily make money taking this private at a 10% yield assuming some growth in the future. I have said before private value on RT starts at $13, and then goes as high as someone can project future cash flows and stay comfortable.

        That, by the way, is a blanket statement for most publicly traded restaurants...even BWLD, which is one of the most heavily short restaurant names...trades at 8x cash flow. Fact of the matter...even adjusting for permanent consumer spending changes...restaurants look cheap.



    • Right, because long-term, no one will EVER eat at a restaurant again, particularly at a family-friendly burger joint like RT with a low price point. Or Applebees, or TGIFridays. Yeah, they'll all go out of business. This makes some REAL sense.

      Because even at its nadir, RT will still generate about $1.60 a share in FREE cash flow. Yep, those kind of ESOTERIC metrics (for my buddy Jim G., AKA Jamison) will just get you confused. All you have to do is read newspapers, yahoo, and other sites and you'll see we will NEVER come back from this recession EVER. Why? Because NO ONE will EVER spend another dime, and we are all in debt up to our eyeballs.

      LOL...keep sipping at that trough.

      That said, congrats on turning from the dark side here. You will make money being long from this point...3 weeks until they report earnings that will have the morons on this board scratching their heads. "Well, I thought they were going out of of business..." LOL. Easiest money you'll ever make here.

      As for the rest of comments on my last posts? Hard constantly being proven wrong, isn't it? So you guys just going to give up...or are you going to watch the rest of us clip 4% today and think you were right to sit this one out?



      • 2 Replies to the_raven_35
      • This is Exhibit B. Have you ever seen one of those old "B" science fiction movies where there is a mad scientist who has created some sort of horrible invention that he threatens the world with. Raven apparently lives this role daily. Picture her screeching out her lines. "They laughed at me at the academy. They said I was mad, MAD (her eyes begin to twitch). I'll show them ALL! I'll show them all who's mad (Maniacal laughter)!". In the end, the horrible invention ends up harming many, most of all, the mad scientist.

      • Scratch that 4% talk...looking like 5%.

        Enjoy your weekend, you mopes.


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