Now trading around 6x EBITDA and after this upcoming quarter, EPS TTM should be around $2.15 per share and Ent Val to EBITDA below 6 with fair value around 13 to 14 x EPS that gives you $27.95 to $30 fair value.
I pretty much agree - I think fair value is around 28-30. If they can continue to expand margins at Golden C, then we could be talking 32-34. The firm is building 6 Golden Cs this year. By June they will have 26 and are contracted for 41 in the next 3.5 years. Each Golden C costs $3 mill in cap ex and probably 100k plus in opening expenses. When the expansion is done in 3 years, The firm will be generating an extra $15.5 million a year in net cash flow (no new cap ex on Golden C) AND will presumably be generating a lot more cash flow from the extra 15 stores. In other words, this firm could easily be cranking out $20 million in free cash flow in 3+ years. With a little over 5 million shares outstanding that is about $4 per share in free cash flow a year. That could easily give FRS a valuation of $40 to $50 in 3+ years. In the meantime you get 44 cents a year, probably increasing by 8 to 10% a year.
I never understood why someone would look at EBITDA. Depreciation does matter as does interest. In particular, while houses don't depreciate, I believe restaurant buildings do, as they seem to have a finite life.
Just a metric that can be used to compare accross firms. Less than 6 or less is pretty cheap for a restaurant chain.
Look at outfits with similar growth potential:
Frischs = 6.03 after today (but next quarter should be much better than last year)
Wendy = 8.97 Darden = 7.73 Steak n Shake = 9.26 Ryan = 7.75
You sacrifice liquidity, but there is more cash flow here if you are patient.
If the Golden C concept can start revving up, this could be a great investment. Right now, Frischs chain is doing all the lifting. The firm should be getting to the point where economies of scale kick in and the learning curve kicks in and they start picking up performance on that unit.
Also, SSS have been excellent for Ryans, Sonic, Wendys, etc...
The thing about this stock is some guy with 4,000 shares who is a little worried about the market sells and he can drop the stock 30 cents.