Ruby Tuesday, Inc. (RT), Darden Restaurants, Inc. (DRI): ShouId We Buy Into This Casual Dining Chain’s Turnaround?

Interestingly, investors might feel that the compensation bonus of the new CEO aligns with their interests. The new CEO would have the right to purchase up to 250,000 shares, which would cliff vest after 36 months only if Ruby Tuesday reached $14 per share.

Peer comparison

At around $7.30 per share, Ruby Tuesday is worth around $441 million on the market. The market values the restaurant chain at 7.4 times EV/EBITDA. Compared to its peers including Darden Restaurants, Inc. (NYSE:DRI) and DineEquity Inc (NYSE:DIN), it is the smallest as well as the cheapest company among the three. Darden Restaurants, Inc. (NYSE:DRI) is trading at $52 per share, with a total market cap of $6.7 billion. It has a bit higher valuation at 8.8 times EV/EBITDA. DineEquity, at $69 per share, has a total market cap of $1.32 billion. It has the most expensive valuation at 9.4 times EV/EBITDA.

In terms of profitability, DineEquity is the most profitable with the highest operating margin at 28.6%. Darden Restaurants, Inc. (NYSE:DRI) ranked second with only 8.25% operating margin. The operating margin of Ruby Tuesday is currently the lowest, at 2.43%. Income investors might like DineEquity the best with its highest dividend yield at 4.4%. While Darden Restaurants, Inc. (NYSE:DRI) pays its shareholders dividend with a yield of 3.9%, Ruby Tuesday doesn’t pay any dividends.

My Foolish take

Among the three, I like DineEquity the most compared to the other two companies due to its highest dividend yield and highest operating margin. Investors might consider Ruby Tuesday as an opportunistic stock on its turnaround effort. If CEO Buettgen is successful in Ruby’s Tuesday restructuring, Ruby Tuesday’s stock price will keep increasing in the next several years.

The article ShouId We Buy Into This Casual Dining Chain’s Turnaround? originally appeared on Fool.com is written by Anh HOANG.

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