Mario Gabelli (Trades, Portfolio) is the founder, chairman and CEO of Gabelli Asset Management Company Investors (GAMCO Investors), a $30 billion dollar global investment firm headquartered in Rye, New York.
Hedge fund guru
The investor reported decreasing his stake in Biglari Holdings Inc (BH, Financial) on March 19, according to GuruFocus Real Time Picks.
With the transaction, Gabelli’s position decreased by 0.3% to 133,251 shares. The fund initiated a position in the second quarter of 2010, and during 2014 Gabelli added and reduced the stake to reach 136,401 shares at the end of the fourth quarter of 2014, worth $54.49 million.
Stock performance
The company operates and franchises restaurants in the United States. It also has a $875.52 million market cap.
Biglari’s shares lost 21.2% during the past year and closed 2014 at a price of $399.51 each. The last closing price is at $424. The company showed a sharp decline in earnings per share (EPS) when compared to the year-earlier quarter. In the fourth quarter it reported EPS of $4.96, far below the $17.34 reported in the same quarter a year before.
Steak 'n Shake: A Biglari Holdings company
Today the firm announced that its wholly owned subsidiary Steak 'n Shake is on track to reach its 25th consecutive quarter of same-store sales growth.
Steak 'n Shake serves premium burgers and shakes in more than 500 restaurants across the country and the world. Sardar Biglari, the chief executive officer, said: "When present management took over the reins in August of 2008, Steak 'n Shake was generating negative cash flows from its core operations, was out of compliance with its debt covenants and was within 90 days from insolvency. The situation was so dire that we were taking measures such as paying some of our vendors with company shares to stay afloat."
Severe warnings
We feel bearish when we look at its six severe warnings. Revenue has been in decline over the past three years as well as the gross margin. The operating margin also has been in a five-year decline while the company keeps issuing new debt. Moreover, assets are increasing faster than revenue growth, which means that is getting less efficient. Lastly, cash flow from operations presents divergences to the reported net income.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 65.1x, trading at a discount compared to an average of 23.0x for the industry. To use another metric, its price-to-book ratio of 1.37x indicates a discount versus the industry average of 4.08x while the price-to-sales ratio of 1.17x is below the industry average of 1.48x.
Other hedge fund gurus
Hedge fund guru D.E. Shaw is the second shareholder who upped the stake by 1% to 11,801 shares in the fourth quarter of 2014.
Disclosure: Omar Venerio holds no position in any stocks mentioned
