It's Time To Snack On Ruth's Hospitality Group Shares of Ruth's Hospitality Group (NASDAQ: RUTH) tanked and tanked hard in the wake of the Q4 earnings release but we're not surprised the loss has already been recovered. Institutional...

The Institutions Are Aggressively Buying Ruth's Hospitality Group

Shares of Ruth's Hospitality Group (NASDAQ: RUTH) tanked and tanked hard in the wake of the Q4 earnings release but we're not surprised the loss has already been recovered. Institutional buying has been aggressively bullish the last year and especially YTD in 2022 and the results aren't bad. Far from it, in fact. Ruth's Hospitality Group beat on the top and bottom line and provided upbeat guidance in its action if not the spoken word. The bottom line is that a major rebound is happening within the restaurant industry and Ruth's Hospitality Group is well-positioned with a deeply established brand and desirable product.

The major driver of share prices over the last 5 quarters has been the institutions. The institutions were net buyers 4 out of 5 of those quarters with a noticeable uptick in activity in Q1 of 2022. So far, in the first 7 weeks of the year, the institutions have purchased more than 7.7% of the market cap and we think that number is moving higher right now. The post-release decline in share prices provided an opportunity to buy the stock near the low-end of the 12-month range and that buying is confirming support at an important technical level.

Ruth's Hospitality Group Serves A Sizzling Q4 Report

If there is one thing clear in Ruth's Hospitality Group's Q4 report it is that business is on the upswing, accelerating, and about to exceed the pre-COVID levels. In fact, the comps at open-only stores have already surpassed those levels so we are expecting to see revenue strength continue simply because of improving stability at locations still impacted by shut-downs and traffic disruptions. Regardless, the $126.74 million in net revenue is down on a 2-year basis but up 63.8% from last year and 260 basis points better than expected. The strength is driven by volume and pricing efforts intended to stave off the bite of inflation.

Moving down to the margin and earnings, the company reported a 470 basis point increase in F&B costs underpinned by a 43% increase in beef prices. The good news is that volume leverage and pricing efforts more than offset the difference resulting in a 360 basis point improvement in the operating margin. On the bottom line, the GAAP EPS of $0.40 is up from $0.04 last year and beat the Marketbeat.com consensus by $0.15 with similar strength in the adjusted figures. The takeaway here is that cash flow is normalizing and allowed the company to reinstate the dividend.

Ruth's Hospitality Group Reinstates The Dividend

Ruth's Hospitality Group reinstated the dividend in early January to very little fanfare. The payout is worth about 2.12% with shares trading at $23. The payout is running about 30% of the Q4 earnings and comes with a solid balance sheet so we think it will stick barring unforeseen viral outbreaks and the threat of WWIII. The company is also buying back shares and purchased $12.8 million worth during the previous quarter. We expect that trend to continue as well.

The Technical Outlook: Ruth's Hospitality Confirms Support

Shares of Ruth's Hospitality Group appear to be confirming support at what we view as a very important technical level. This level is consistent with a bottom that was forming prior to the pandemic that has since been broken and then reconfirmed as support. That bottom is consistent with turnaround and growth efforts that had the company poised to grow revenue, earnings, and its dividend and we see the company in a position to pick up now where it was forced to leave off. Assuming the market follows through on what we are seeing today, this stock should move up to the $28 level and may move higher if the spring is better than expected.