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Eye Of The Lion: LionEye Keeps Buying Sinking Shares Of This Restaurant

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The slumping stock price of its restaurant picks has had little effect on Stephen V. Raneri‘s LionEye Capital Management. The fund keeps on increasing its exposure to one such holding, Famous Dave’s of America, Inc. (NASDAQ:DAVE). According to a recent 13D filing with the SEC, LionEye acquired another 138,164 shares of the $142.94 million operator of the barbecued and grilled meats restaurants, through its affiliated funds, taking its total stake to 1.04 million shares valued at $21.24 million according to the stock’s closing price on Friday. The holding represents almost 15% of the company’s outstanding shares.



New York-based hedge fund LionEye Capital Management was co-founded by Raneri along with Arthur J. Rosen to profit from an event-driven strategy, which involves investing in companies undergoing changes in management or business models. At the end of March, the market value of LionEye’s public equity portfolio stood at $2.49 billion, with the finance sector representing 49% of the holdings. Besides Famous Dave’s of America, Inc. (NASDAQ:DAVE), the other prominent food-related stock in the company’s portfolio is Darling Ingredients Inc (NYSE:DAR).

Stephen V. Raneri
Stephen V. Raneri
LionEye Capital Management

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 142% and beating the market by more than 84 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

LionEye initiated a position in Famous Dave’s of America, Inc. (NASDAQ:DAVE) during the second quarter of 2014 and this is the second hike in its stake since the fund’s 13F filing for the end of March. So far this year the company’s stock has slid by more than 22%, while the restaurant industry has appreciated by more than 12%.

The company is undergoing quite a few changes that make it an attractive pick for an event-driven investment strategy. Famous Dave’s of America, Inc. (NASDAQ:DAVE)’s CEO Ed Rensi recently resigned and board member Adam Wright has temporarily taken his position while the search for a replacement is on. More important is the change in the company’s business model, which involves a shift towards a more franchise-based business. At the end of March, Famous Dave’s of America, Inc. (NASDAQ:DAVE) had 50 company-owned restaurants, while 134 were franchise-operated ones. The company’s management believes that 90% or more of its stores should be franchised.

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