This article is part of our Rising Star Portfolios Series.

About a month ago, I bought shares of Red Robin Gourmet Burgers (Nasdaq: RRGB) for my Special Situations portfolio. Now I'm back for more, allocating an additional $500, or about 3% of the portfolio, to the position, on top of the 5% that I put in last month.

Red Robin still makes an attractive buy for several reasons:

  • Red Robin has slowed its expansion and is focused on generating free cash flow.
  • Low expectations are built into the stock, and a discounted cash flow analysis suggests shares are at least a little underpriced, and perhaps significantly.
  • Activist investors own a huge slug of shares and have purchased more in the past few weeks, auguring the possibility of a buyout.

Stocks such as those of McDonald's (NYSE: MCD), Yum! Brands (NYSE: YUM), and Chipotle (NYSE: CMG) have a lot of expectations built into their prices -- and for some good reasons. They've been traditionally good operators and have a lot of international opportunities before them, especially in Asia. But a stock like Red Robin has little expectation holding up its price, so even modest outperformance could significantly lift the stock. And that's the type of low hurdle that I want to find.

So for those reasons, tomorrow I'll be adding to my Rising Star portfolio's position in Red Robin.

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Jim Royal, Ph.D., owns shares in Red Robin. Chipotle Mexican Grill is a Motley Fool Rule Breakers recommendation. Chipotle Mexican Grill is a Motley Fool Hidden Gems choice. Motley Fool Options has recommended a write covered strangle position on Red Robin Gourmet Burgers. The Fool owns shares of Chipotle Mexican Grill, Red Robin Gourmet Burgers, and Yum! Brands. 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.