If every investor makes mistakes, then passing up Nathan's Famous (NASDAQ:NATH) has to qualify as one of my real whoppers.

Rewind to late 2004. I had recently covered the hot dog maker's second-quarter earnings. At the time, the stock was trading for $6.40 a stub. Shareholders' equity had gone nowhere for the better part of a decade, but growth was on the upswing; sales were up 16%, and net income was up 27% in that year's Q2. What's more, a back-of-the-napkin valuation suggested the shares were at least 25% undervalued.

But did I buy? Noooooooooo.

Moron. I gave up a double from yesterday's close and, in the process, chose to ignore one of the best micro-cap businesses in America. Indeed, Nathan's is solidly profitable today and sports one of the best balance sheets I've seen for a restaurant. Its sturdy net cash position is eerily reminiscent of the one at Motley Fool Hidden Gems selection Buffalo Wild Wings (NASDAQ:BWLD).

And the business is still improving. Consider Nathan's Q1 2007 results. Sales were up 8%. Net profit was up 19%. And while gross margin in the restaurant business declined by 1.4%, a 17.8% increase in sales of Nathan's branded hot dogs to supermarkets led to big gains overall, including a better than 2% improvement in operating margin. Nice.

So, could this stock keep gaining? A revised back-of-the-napkin valuation says yes. Assuming only market-matching EPS growth and a restaurant industry average multiple of 19 times earnings, my math places the shares at $27 in five years. But that may be conservative if Nathan's financials continue to improve.

Or the firm could backslide. I just wouldn't bet on it. Over the past two years, Nathan's has burned bears like me crispier than a classic dog at a Fourth of July barbecue. Today, the grill is hotter than ever. You've been warned.

Smell that? Mmmmm, it's related Foolishness:

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Fool contributor Tim Beyers likes his hot dogs burned and crispy, and his steak medium and juicy. He owns shares of Buffalo Wild Wings. Get a peek at everything Tim is invested in at his Fool profile. The Motley Fool has an ironclad disclosure policy.