Unless you live in Texas, chances are you’ve never heard of Luby’s Inc (LUB). This company has 128 restaurants, most of them in Texas, but some in four nearby states. They provide customers with cafeteria-style dining that is very popular among many ages and ethnicities, not the least of which is the baby boomer generation. This generation is retiring en masse as we speak. They are only going to have more time on their hands and more cravings for yummy cafeteria food. Luby’s menu is comprised mostly of home-style food: Salisbury steak, chicken fried chicken, liver and onions… you get the picture.
If you look a LUB stock chart, you’ll notice the stock has been in a slide since September of 2007. This slide has largely been unrelated to the company itself.
The entire market has been down significantly due to the housing credit crunch. To an extent, Luby’s has suffered along with the rest of the market. Since the company’s market capitalization is only $200M, the stock price can move significantly when one major holder has a margin call placed on his account from other suffering investments. This basically means that there has been a lot of forced selling of LUB for reasons that have nothing to do with the company itself.
A second major reason for the decline has been due to a hedge fund who has been unloading their sizeable holding in the company. Last year, this hedge fund tried to take over the company’s board of directors. The shareholders held a vote and determined they would prefer the company continue to be managed by the Pappa brothers (who have an extensive history of running successful restaurants around Texas). After they lost, the hedge fund threw itself a pity party of sorts and began unloading their position.
There is a ton of upside to LUB. First, they own the land on which 94 of their 128 properties sit. Just this land itself is almost enough to comprise the stock’s current value of 7.20 per share. Additionally, Luby’s has no debt and they’re making money. In the past two quarters, more selling has been triggered when Luby’s failed to meet their projected earnings. By the way, it’s worth noting that only one financial firm makes projections on Luby’s, so there is anything but a mean earnings projection of which they aspire to achieve. Much of the reason they company missed its earnings projection was because of increasing food costs and the expenses of the shareholder proxy vote I mentioned earlier.
To summarize, LUB has been kicked repeatedly, but there’s only so much more it can possibly be kicked. At the end of the day, the stock has no debt, owns most of its land, and it selling a product that people line up for to get their hands on. This is not a get-rich-quick stock. But if you have some money with which to exercise a little patience, bet on LUB to climb to spectacular heights relative to its current basement bargain price.
Disclaimer: The author of this article is a shareholder in Luby’s Inc. (LUB).
