Enjoy the Steak but Avoid the Stock
By
Timothy Lutts, Chief Investment Strategist and Editor of
Cabot Stock of the Month ReportFrom Cabot Wealth Advisory 3/17/08
Sign up for free Cabot Wealth Advisory e-newsletterI recently visited Ruth's Chris steakhouse in Boston for a wonderful meal.
The restaurant is relatively new to the Boston scene, opening up just a few years ago. But I've already visited three times since then, and despite the stigma of being a chain, every meal (appetizer, dinner, dessert, you name it) has been absolutely terrific. Their location doesn't hurt, either--it's right in Boston's Old City Hall, just a couple of blocks from Government Center, as it's known. Like most top-notch chophouses, it's got a great ambiance and usually terrific service.
Ruth's Chris is just one of many steakhouses I've visited in Boston. Capital Grille and Morton's, two other chains, have locations in Back Bay (near the Prudential Center). Grill 23, a favorite of businesses, and Smith & Wollensky are both near Park Plaza. There are others, including KO Prime and Moo, which both opened in the last few months. Lots of competition = lots of eating for yours truly.
But this isn't a restaurant review; many of my friends and neighbors that visit a steakhouse have different opinions than me. Yet what I thought was interesting was the action of the stocks...at least for the few that are publicly traded.
Ruth's Chris (RUTH) just came public in 2005, but has since slid from the mid 20s to 6 1/2. Revenues have grown fairly consistently, but earnings were cut in half during the fourth quarter, and projected to shrink some more this year. The stock just hit a new low today!
Morton's (MRT) is even newer, going public in February 2006, but also is suffering a similar fate to that of RUTH. The stock was just over 20 last summer, but is now trading south of 8. Like RUTH, revenues are expanding slightly, but costs are apparently hitting the bottom line; earnings are expected to decline this year.
Darden Restaurants (DRI) owns Capital Grille, although in fairness, it also owns a ton of other properties. Yet its fate is similar; a drop from 47 last June to a low of 21 in January, before bouncing to its current level of 30. Earnings are OK, but the growth has vanished.
As far as I can tell, Smith & Wollensky is now a privately owned subsidiary of a larger firm, after getting bought out last May.
Thus, I think it's a good idea for any steak lover to visit one of the premier steakhouses in your area every couple of months. It's a real treat! But when it comes to investing, the message is clear: Enjoy the steak, but avoid the stocks.
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