If you live in the heart of barbecue country -- Tennessee, Texas, North Carolina, and South Carolina -- then you'll know what I mean when I say there are BBQ contenders and BBQ pretenders. Whether it's the sweet, tomato-based sauce of east Tennessee and Texas, the hickory-smoked version of west Tennessee, the vinegar-based variety of North Carolina, or the sweet, mustard-based sauce of South Carolina, Southerners know that when it comes to BBQ, no one does it better.
So how does Famous Dave's (Nasdaq: DAVE), with its roots in the cornhusker lands of Minnesota, stack up against east Tennessee's famous Ridgewood Barbecue? While I prefer Famous Dave's sauces over the flavors offered by corporate competitors such as Darden Restaurants' (NYSE: DRI) Smokey Bones concept or Buffalo Wild Wings (Nasdaq: BWLD), Ridgewood's and other Southern pork fixtures have nothing to fear.
Famous Dave's isn't backing down, however, as suggested by its recent move into Texas to go along with four restaurants in Tennessee (it doesn't have units in the Carolinas). And to its credit, as far as chain-variety BBQ goes, Famous Dave's does have some lip-smacking good food. Unfortunately for investors, its stock isn't nearly as appetizing.
According to the latest results, it doesn't look like this investment is getting any tastier. For fiscal 2004, the company was able to improve on an operational level, showing an operating profit of $7.4 million versus a loss in 2003. However, sales from its restaurants declined to $89.2 million, compared with $91.5 million a year ago.
Compare that restaurant revenue decline with Buffalo Wild Wings' accelerating unit sales, which exceeded the prior-year mark by 34.8%. Famous Dave's did, however, one-up that company through substantial operational improvements, showing operational profit margins of 8.2%, which exceeded Buffalo Wild Wings' margins by 15%.
Famous Dave's stock is branded with a price-to-earnings ratio of 40, while Buffalo Wild Wings carries a P/E of 43. Further, Famous Dave's stock trades at 1.3 times sales, with Buffalo Wild Wings at 1.8 times sales. Though on the surface it may appear that Famous Dave's value can be compared to its competition, there is a huge difference between the revenue growth of these two enterprises: One is actually growing.
Until Famous Dave's can show sustainable accelerating sales the way its competition does, it's best to stick to its finger-lickin' ribs and stay away from the stock.
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Fool contributor
Jeremy MacNealy
has enjoyed plenty of good pulled-pork BBQ sandwiches, but does not own shares in any company mentioned.
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