If you're a fan of cooked-to-order steak burgers, thin fries, chili, and good old-fashioned hand-dipped milk shakes, then you'll want to arrive early when Steak 'n Shake (NYSE:SNS) opens its doors near you. Show up late and you'll wait.

With two-thirds of the U.S., or 140 designated market areas (DMA), still awaiting their first local Steak 'n Shake and the other third barely penetrated, it's a good bet that many of you have yet to order your first Original Double.

Open 24 hours a day, offering drive-through and dine-in services, and with an average check of $6.14, Steak 'n Shake is priced a tad higher than true fast-food chains like Checkers (NASDAQ:CHKR) but lower than other casual-dining concepts like Applebee's (NASDAQ:APPB). And it's these appealing characteristics that fuel the company's popularity.

As Steak 'n Shake's popularity increases among consumers, its stock continues to attract investors. Though it was not long ago that the company faced some difficulties, as Rick Aristotle Munarriz pointed out, things have been good of late. Reading through the 2003 annual report and taking a glance at its strong second-quarter results, again highlighted by Rick (something tells me that TMF Edible is an Original Double fan), the future continues to look favorable for Steak 'n Shake shareholders.

Ingredients for success
A significant part of the turnaround process for Steak 'n Shake was its ability to decrease management turnover. That turnover decreased from 50% in 2001 to 40% in 2002 and to as low as 30% in 2003. Enough cannot be said about the importance of having strong, sustainable leadership at each individual restaurant.

Another important factor that has spurred growth was the introduction of credit cards. Cashless transactions now account for 20% of sales. Additionally, credit-card users have a higher average transaction and a greater visit frequency, both of which bode well for the bottom line.

As far as growth is concerned, Steak 'n Shake increased its sales by 8.2% from 2002 to 2003. Over the same period, it increased its revenues by 8.7%. The company earned $0.77 per share in 2003, and its guidance for 2004 earnings per share (EPS) was recently raised to an average of $1.02 -- a 32% year-over-year increase in EPS.

Growth has been good so far, but is it producing cash needed to sustain future growth? As of its 2003 annual report, Steak 'n Shake had $24.8 million in cash and only $161,328 in long-term debt. Investors are excited to see substantial cash on hand and minimal debt, but they get a warm, fuzzy feeling when they see free cash flow (FCF) increasing year by year, with the company producing $4.8 million in FCF in 2001, $13.7 million in 2002, and $20 million in 2003.

An important variable to remember is that a significant portion of the capital expenditures, which are deducted from the net operating cash flow to figure the FCF, is used to open new restaurants. Each restaurant costs Steak 'n Shake about $1.7 million to open, and considering it opened 13 new restaurants in 2003, its FCF growth appears all the more impressive.

A lot of burger for the price
For about $7 you get an Original Double, a cup of thin fries, and a large milk shake. That's not a bad deal. Is the company's stock a deal? With a recent stock price of about $19 multiplied by its 27.3 million shares, it has a market capitalization of $518.7 million. Adding its long-term debt and subtracting its cash, Steak 'n Shake has an enterprise value (EV) of $494 million. Dividing the enterprise value by its free cash flow, it has an EV/FCF number of 24.7. That's not too bad considering that a significant portion of its FCF is used to open new restaurants that will produce more cash in the future. Another way to look at it is that Steak 'n Shake has a current price-to-earnings (P/E) ratio of 21.8, but its P/E based on forward 2004 earnings is only 17.8 -- in today's market, that's not too bad a deal either.

So many places to go
An appealing aspect of Steak 'n Shake as a potential investment is that its market remains largely untapped. Consider that McDonald's (NYSE:MCD) has over 30,000 restaurants worldwide, Wendy's (NYSE:WEN) has about 6,500 restaurants, and Steak 'n Shake has 413 restaurants with plans to open an additional 15 to 18 in 2004. Its growth prospects certainly look tasty.

Combine those prospects with the cash on hand, minimal debt, decreasing outstanding shares, increasing earnings and free cash flow, a solid return on equity, and a reasonably valued share price, and shareholders are able to sit down to enjoy an Original Double and take comfort in knowing that a small part of the $7 they spent on the meal will come back to reward them through long-term ownership in Steak 'n Shake.

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Fool contributor Jeremy MacNealy has eaten his share of Original Doubles, but he does not own shares in any companies mentioned in this article. The Motley Fool is investors writing for investors.