It was a dark and stormy night. The wind was howling, and the house was making noises that I knew could not possibly be human. Suddenly, something red streaked by the window. And now it's knocking at my door? Oh, right, trick-or-treaters! Well, Halloween wasn't all that scary around here, and neither were many of the costumes that I saw, including the one that looked strikingly similar to Red, the Red Robin
The Red Robin costume may not be all that popular with the kids right now, but their burgers are becoming a favorite with children -- and investors -- of all ages. Evidence for this lies in the sometimes one-hour wait to get a seat in my local Red Robin and the 50% rise in the stock this year. Most of this rise came in late September when guidance for the third-quarter earnings per diluted share was raised to $0.43.
Yesterday the company went even further by beating its own raised estimate and reported diluted earnings per share of $0.46 -- a 77.3% increase over the prior-year period. The company now estimates revenues of $406 to $408 million and net income of $1.49 to $1.50 per diluted share for its fiscal year. Revenues of this size would push Red Robin's sales per unit numbers much higher than last year and close to those of McDonald's
Surprisingly, Wall Street is not happy with the results. The probable cause of this seems to be that these raised fiscal-year estimates are still lower than the average analyst estimate. Honestly, this really doesn't surprise me since there are too many investors -- and investing journalists -- who simply react first and then think. So let's be Foolish and think first before reacting.
On the surface these raised estimates are not good. The fourth quarter is supposed to be the strongest for the company as it is for many restaurants. Backing out performance of the first nine months of the year, estimated revenue and diluted EPS for the fourth quarter would be lower than what it just reported for the current quarter. But some simple math reveals that the raised estimates take into account only the better performance in the third quarter. Red Robin beat its third-quarter revenue estimate by $3 to $5 million and net income estimates by $0.13 to $0.14. Add those into previous estimates, and -- abracadabra -- we get somewhere around $406 to $408 million for revenue and $1.49 to $1.50 for net income. Exactly what the company is estimating.
With the raised guidance and continued growth estimates over 20% for the next few years, any weakness in the price may provide some good opportunities to put some money on the table or add to your position. The stock has appreciated significantly so far this year, but sometimes it's better to miss out on the beginning to be more confident of your investments in the end.
Interested in some more complicated math but don't want to do it yourself? Check out some of the numbers being tossed around on the subscriber-exclusive Inside Value or Hidden Gems discussion boards by taking a free trial to the newsletters.
Fool contributor John Bluis owns stock in Buffalo Wild Wings but none of the other companies mentioned.