Investing in Restaurants

“Bakeries and restaurants”, @kiavoni types on Twitter, “are investing wins. People always eat, recession or not.” Popular wisdom, we may ponder. But one of the sector’s prominent former executives happens to agree: introducing Marcus Jundt. Jundt was CEO at American and sushi bar chain Kona Grill, Inc (KONA) last December when he opted for selling to his father some company’s shares worth $1 million -an earnest gift, especially priced below the trading values at the time, that earlier in 2009 angered just one complaining shareholder named Justin Bennitt, and then led to Jundt’s resignation on May, 15, after a voting rebellion had pushed him aside at the beginning of the month.

The point remains, though. Expectations are optimistic over popular restaurant-related firms’ performance. In fact, the very same morning Kona’s CEO had announced his step-down, Mill Road Capital offered buying the business’ stock at twice the closing price, or $4.60 per share.

Stockholders’ hearts beat rarely these days but they still show interest in the eating house activity and particularly like those few brave who have moved farther into making their products available to consumers in a variety of ways, say supermarket’s shelves, as Nathan’s Famous (NATH), which operates, franchises and licenses restaurants and sells its branded merchandise in retail outlets.

Creativity is the word: the economic downturn means that the restaurant industry has experienced a substantial decline in profits -true enough for almost everybody- and, therefore, manoeuvring is a must. Ask Starbucks Corp. (SBUX) and they will tell you that the cutback on desserts demand within Starbucks coffee shops have been quite successfully offset thanks to its coffee-flavoured line of ice cream, at hand in large self-service grocery stores and some cool and trendy establishments, too.

There is another factor to watch, which is a classic: location, location, location. And not just in the usual, primitive sense of, for instance, Famous Dave’s of America, Inc (DAVE) opening its first franchised salads and sandwiches restaurant in Time Square -they celebrated the event by ringing the NASDAQ Opening Bell last June, 10, at 9:15 a.m.-, but as well in globalization’s terms. The recent worldwide reference is Kentucky based Yum! Brands, Inc. (YUM), that plans to enhance results of its Pizza Hut and Kentucky Fried Chicken restaurant chains with 200 new Taco Bell restaurants in India between now and 2011. For the sceptic reader, two remainders; first, its impressive 14% earnings per share growth in 2008 -seventh straight year with a percentage of at least 13 points- and secondly, its costs reduction to 11.46% from 12.14%.

The underlying trait, as any twitterer would surely spot, is that these companies provide affordable goods, which suit the crisis-punished pockets of the most and strengthens these firms’ case for being fiercely competitive. More than stock markets display; analysts at Deutsche Bank believe that even shares of Mc Donald’s are priced far too cheap. That smells of opportunity.