Richardson Electronics Shows a Spark, but Fogo de Chao Chokes on Guidance

There finally are some signs of life at Richardson Electronics Ltd. (RELL) , which is now the largest legitimate (and one of the few) net/nets available to investors. The company, which has exhibited value trap-like qualities and head-faked a time or two, finally may be back on the path to profitability.

First-quarter revenue rose 11%, and Richardson Electronics beat consensus revenue ($37 million vs. $34.1 million) and bottom-line estimates (loss of one cent versus loss of 12 cents). The balance sheet remains solid and very liquid; RELL ended the quarter with $61.4 million, or $4.77 per share, in cash and investments and no debt, yet shares currently trade in the $6.75 area, so the market is placing little value on the operating businesses. Shares are up 11% over the past week to a 15-month high in reaction to the semi-solid quarter. The question is whether this is another head fake; we saw a similar situation in the fourth quarter of 2016, with rising sales year over year and near break-even performance, but the company was unable to maintain that momentum.

The thing that is most intriguing here, though, is that the first quarter is generally a lower revenue quarter, and we'll see if this is indeed a sign that business is improving while happily collecting the 3.5% dividend. RELL currently trades at just 0.82 times net current asset value and 0.7 times tangible book value per share. That's cheap, but keep in mind that has been typical for this name. To expand those valuations, Richardson Electronics will need to need to start turning a profit, or see Ed Richardson, who owns most of the voting shares, decide to sell.

Elsewhere, the news was not so good for a restaurant name I've been following but have yet to pull the trigger on. Upscale casual dining name Fogo de Chao Inc. (FOGO) , which I consider one of the cheaper names in a generally overpriced and overcrowded sector, took a 7.5% haircut in Wednesday's trading after cutting full-year guidance prior to the market open.

Preliminary third-quarter numbers indicate that same-store sales fell 5.1% during the quarter. The company put the blame both on hurricanes in the U.S. and sluggishness in Brazil, where FOGO has several locations. The company lowered full-year revenue guidance to a range of $315 million to $320 million versus the $318 million consensus, and earnings per share to a range of $0.77 to $0.80 from a range of $0.92-$0.95. Consensus estimates for next year, currently at $0.92, put the forward price-to-earnings ratio at 12. Of restaurant stocks with market caps in excess of $300 million, only two, Brinker International Inc. (EAT) and DineEquity Inc. (DIN) , are cheaper on the same basis.

I'm still in no hurry on this one; heck, I waited a couple years to take a position in Zoe's Kitchen Inc. (ZOES) .

At the time of publication, Heller was long ZOES.