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Nathan’s Famous (NASDAQ: NATH) Delicious Investment

Nathan’s Famous, Inc. (NASDAQ: NATH) is the business name of the Nathan’s Famous brand bearing the Nathan’s Famous trademarks. Nathan’s is a quintessential part of New York history. The company was founded in Coney Island in 1916 and has been a legend ever since. No trip to Coney Island would be complete without stopping for a Nathan’s Famous hot dog. Nathan’s is truly part of the experience. You might be surprised to know that the company is traded publically and the numbers are extraordinary.

Though the almost century-old hot dog vendor may be small, with a market cap of just $148 million, it packs a big punch with mighty impressive sales growth over the past 10 years. As of 2012, the Nathan’s Famous restaurant system consisted of 268 franchised units and five company owned units located in 26 states and six foreign countries. Nathan’s Famous distributes its Nathan’s World Famous Beef Hot Dogs in all 50 states, Puerto Rico, Canada, Guam, and even Kuwait, who seems to have developed a taste for American hot dogs. The company’s pre-packaged hot dogs and other products are sold in over 31,000 supermarkets in 42 states.

The Numbers

The company reported third quarter EPS of $0.63, up over the $0.45 reported last year. Revenue for the quarter came in at $21.36 million as opposed to $19.12 million from a year ago. The company has a debt to equity ratio of 0%; an EPS diluted quarterly year-over year growth of 40.19%, and free cash flow of 4.103 million. Return on equity is currently 20.32%. Gross profit margin quarterly is 34.62%. Shares are currently trading at $33.70, near the top of its 52 week range. Amazingly, Nathan’s outperformed 482 of the stocks in the S&P 500 in 2012. This includes many of the big boys such as eBay (NASDAQ: EBAY), and Whole Foods (NASDAQ: WFM). What’s not to like?

The only fly in the ointment may be Nathan’s contract dispute with its chief licensee, SMG. A judge ruled in 2010 that Nathan’s could not end SMG’s license to make and package its goods and ordered Nathan’s to pony up $5 million in damages. The company is appealing the ruling, but the judgment did hurt its earnings.

The bottom line is that restaurants have found their way in the American markets. Many well-known chains are hitting all-time highs. The breakouts offer varied choices within the sector, and small-cap leaders such as Nathans Famous are well positioned to outperform based on sound marketing and business strategies. This might be a great place to invest as the calendar flips into 2013. As with any potential investment we recommend you do your homework before buying. A meal at your nearest Nathan’s might be a good start. Delicious indeed!