Ruby Tuesday Shares Go Green, but I'd Still Rather Buy Buffalo Wild Wings

Ruby Tuesday jumped on hopes its turnaround is taking hold. Here's why one Fool isn't convinced.

Apr 11, 2014 at 12:00PM

Shares of Ruby Tuesday, Inc. (NYSE:RT) jumped more than 12% Thursday after the company turned in a solid third-quarter report. But you know what? I'm convinced there are better places for restaurant investors to put their money to work.

Before we get to that, however, let's take a look at what has everybody so excited.

The numbers
First, though Ruby Tuesday's revenue from continuing operations fell almost 4% year over year to $295.6 million, it still handily beat analysts' estimates, which called for first-quarter sales of $284.2 million.

Ruby Tuesday, Buffalo Wild Wings

Source: Ruby Tuesday.

Meanwhile, Ruby Tuesday's loss from continuing operations narrowed to $0.07 per share from $0.10 in the same year-ago period, which was good enough to beat expectations by a penny per share.

But perhaps most encouraging, even though Ruby Tuesday management declined to provide specific earnings guidance, they did say same-restaurant sales in the current quarter are expected to be somewhere in the range of minus 1% to plus 1% -- a notable improvement that stoked hopes that its turnaround is taking hold.

Here's why I'm not convinced
First off, haven't we been here before? 

After all, this time last year Ruby Tuesday shares jumped on eerily similar results. Only then, at least Ruby Tuesday was profitable, despite company-owned restaurant closings and year-over-year decreases in revenue, net income, and same-restaurant sales. What's more, investors rejoiced when the company estimated same-restaurant sales would be flat for the full fiscal year 2013. 

Unfortunately, three months later investors were in for a rude awakening when Ruby Tuesday's fiscal fourth-quarter results badly missed expectations. For the full fiscal year 2013, same-restaurant sales at company-owned and franchised locations had fallen 1% and 2.1%, respectively.

Turnarounds are rough -- take a bite of this instead
Putting aside Ruby Tuesday's limited guidance and track record of underperformance, I'm simply not impressed by a company that not only just lost slightly less money than Wall Street expected but also still seems to lack a coherent, compelling vision to help consumers identify with its brand.

Buffalo Wild Wings, Ruby Tuesday

Source: Buffalo Wild Wings.

Instead, I'd much rather put my money to work in a restaurant chain for which long-term success is all but assured. You know, one of those that consumers actively seek out to satisfy a particular urge.

If you're looking for a peer in the casual-dining space, Buffalo Wild Wings (NASDAQ:BWLD) immediately comes to mind given its entertaining atmosphere and relatively focused menu offerings. In short, Buffalo Wild Wings stands out among its peers by limiting its scope and serving a unique niche. Wings, beer, and sports? Yes, please.

Luckily for you, cautious CEO comments regarding the future price of wings have helped shares of Buffalo Wild Wings drop roughly 5% so far in 2014, despite a solid 22% increase in comparable quarterly revenue and comps growth of 5.2% at company-owned restaurants during its most recent quarter. What's more, Buffalo Wild Wings also expects earnings to grow 20% in 2014, thanks to positive comps, carefully controlled costs, and continuing to build out new locations.

But there is a catch. Namely, that Buffalo Wild Wings stock simply doesn't look cheap; shares currently trade around 36 times last year's earnings and 24 times next year's estimates. Even if we ignore the fact that we can't calculate those ratios for the unprofitable Ruby Tuesday, Buffalo Wild Wings' premium rightly gives investors pause.

Foolish takeaway
Then again, when has Buffalo Wild Wings ever looked cheap? 
Looking out over the past five years -- a period during which Buffalo Wild Wings' stock has quadrupled -- the wing specialist's shares have boasted an average trailing P/E ratio of 27.5.

I'll admit shares of Ruby Tuesday could offer plenty of upside if same-store sales continue marching in the right direction. Personally, however, I'm more than willing to pay a premium for what appears to me to be an obviously superior business.

In the end, if you can maintain a three- to five-year time frame and are willing to dollar-cost average into a position, I'm convinced Buffalo Wild Wings will more than whet your appetite for long-term profits.

Your credit card may soon be completely worthless
Regardless of where you decide to dine, you still need to pay the check. But did you know the plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player? When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Steve Symington owns shares of Buffalo Wild Wings. The Motley Fool recommends and owns shares of Buffalo Wild Wings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers