I Heart Luby’s (LUB)
Right now, my largest stock position by far is in a Texas cafeteria chain called Luby’s. Unless you’re from Texas, you most likely have never heard of this company. Your average trader/investor on Wall Street certainly knows next to nothing about this company, which makes me feel like I have an advantage over the market. Here are the four main reasons I have most of my cash parked in Luby’s stock:
1. Luby’s is ran by Texas’s most successful restaurateurs, the Pappas brothers. Again, if you’re not from Texas, you probably have never heard of Pappasitos, Pappas Seafood House, and Pappadeaux. But if you are from Texas (especially the Houston area), these names are legendary. The Pappas brothers started buying stock of Luby’s about eight years ago and are now the CEO and COO. The brothers own over 30% of the shares outstanding, and they’ve been BUYING lately too. While many were quick to dump the stock over a few bad quarters, the Pappas were buying. Hmmm, who am I going to side with. Some random Wall Street trader who knows next to nothing about the stock, or the men who know the company and the Texas restaurant business inside and out. I think it’s simple.
2. Luby’s has a solid growth plan. Luby’s has a new model in place for its cafeterias. Its new model has a more modern appeal. Additionally, it sells higher margin items through its coffee bar (besides coffee, they offer smoothies and ice cream). These newer models have shown to outperform the traditional Luby’s cafeteria model, likely due to the overall enhanced customer experience. As Luby’s builds more of these types of cafterias and replaces its current cafeterias with these models, we can expect higher revenues and profits.
Additionally, Luby’s has been expanding its culinary contracting business. Basically, it serves foods at hospitals and other health care facilities. Luby’s food has always been a hit with the geriatric crowd, so there is more growth opportunity for this small segment of the company too.
3. Luby’s has valuable real estate holdings, which I believe are underappreciated by the market. Luby’s owns the land on more than 90 of its 128 cafeterias. Many of these cafeterias were built 20-30 years ago. On its balance sheet, Luby’s lists its land assets at cost, so its land values as listed on its books are grossly undervalued. Currently, Luby’s is trading at its book value. Putting two and two together, I think it’s safe to say that Luby’s is trading well below its true book value. I’d venture Luby’s may be even trading at or below its liquidation value.
4. Did I mention the company has no debt?
Disclaimer: Authors owns shares of Luby’s (LUB)
