Ruth’s Hospitality Group (RUTH): a Red Meat Trade

I'm anticipating a 30% jump by this summer

   

Unless you’re a committed vegan, you probably enjoy a big juicy steak from time to time. I know I do, and I know just where to go to get my medium-rare heifer fix. My restaurant for doing just that is Ruth’s Chris Steak House, the upscale dining chain owned and operated by Ruth’s Hospitality Group (NASDAQ:RUTH).

This company is a true American success story, having started life in 1965 when entrepreneur and single mother Ruth Fertel saw a local New Orleans newspaper ad that read “steak house for sale.” The name of that restaurant was Chris Steak House. Ruth liked what she saw, and raised the capital to buy the restaurant. Through pure blood, sweat, tears and smarts, Ruth made her restaurant a huge New Orleans dining destination. And, a dozen years later, the restaurant was renamed Ruth’s Chris Steak House—and hence the unusual name.

Even more unusual than the name is the incredible success of this fine-dining establishment. As of last year, the company operated 153 restaurants, including 63 company-owned Ruth’s Chris Steak House restaurants, 68 Ruth’s Chris Steak House franchised restaurants, 19 company-owned Mitchell’s Fish Markets, and three company-owned Cameron’s Steakhouse restaurants.

The growth and success of Ruth’s restaurants also has been reflected in RUTH over the years. In fact, the company has been on a big-time roll of late. Over the past 52-weeks shares have spiked nearly 50%, and over the past seven weeks the stock has sizzled 23% higher. RUTH now trades at a five-year high of $9.34 (as of Feb. 21).

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The chart here of RUTH shows the big spike higher in the stock since last week, a move prompted in part by the current bullish mood on Wall Street, but more so by the company’s fiscal fourth-quarter earnings results.

On Friday, Feb. 15, Ruth’s reported a Q4 profit of $3.6 million, or 10 cents per share, for the quarter ended Dec. 30. After adjusting for one-time charges, the company came in with EPS of 18 cents, much better than the $1.9 million, or 4 cents per share, it earned in the same quarter the prior year. The top-line metric also soared, jumping 15% over the prior year to $115.1 million. The numbers were a tasty beat on Wall Street estimates for adjusted EPS of 15 cents on revenue of $111.1 million. Same-store sales in the quarter also were strong, rising 5.4% at its flagship Ruth’s Chris Steak House chain.

The sizzle in RUTH shares of late is, in my opinion, no fluke. In fact, I suspect that if the economy recover, and if consumer sentiment continues to improve, Ruth’s Chris will continue to see more revenue, bigger profits and strong share price performance. That makes RUTH a red meat momentum trade for investors looking to cut into some tasty profits.

I think this stock could easily spike to $12 by the summer, which would represent a gain of nearly 30% from current levels. If you want in on this one, make sure you set a stop-loss in case the tide turns on the stock. I’d place my stop-loss order in around $8.60, which is approximately 8% below the Feb. 21 closing price.

 

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.


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