5 Reasons to Have a Closer Look at Biglari Holdings

A few days ago we ran a screen on service sector stocks with conservative accounting practices, according to the ratings developed by forensic accounting firm Audit Integrity.

We also collected data on insider transactions, and narrowed down the list to a single company that deserves a closer look: Biglari Holdings (BH).

The company was formerly known as The Steak n Shake Company, and changed its name to Biglari Holdings Inc. on April 8, 2010. Aside from the Steak n Shake brand, the company also owns restaurants under the brand names of Western Sizzlin, Western Sizzlin Wood Grill, Great American Steak & Buffet, and Quincy Steakhouses.

We had a look at their most recent financial statements and compared it to the following companies in the same industry: Red Robin Gourmet Burgers, Inc. (RRGB), O'Charley's Inc. (CHUX), Frisch's Restaurants, Inc. (FRS) and Denny's Corporation (DENN).

We crunched some numbers, and came up with 5 reasons to have a closer look at this name.

Interactive Chart: Compare the performance of BH against the S&P 500 index.

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Reason #1: Conservative And Transparent Accounting Practices

According to Audit Integrity, a forensic accounting firm, BH has Conservative accounting practices, with an AGR score of 99. (Note: The Accounting and Governance Risk (AGR) rating is a forensic measure of the transparency and reliability of a corporation’s financial reporting and governance practices.)

Reason #2: Insiders Have Been Buying The Stock

Insiders purchased an average of 38,589 shares per year over the last two years.

Reason #3: Improving Profit Margins

During the most recent quarter (12 weeks ending 2010-09-29), Biglari Holdings reported a gross profit margin of 25.71%, an improvement from last year's corresponding quarter, when the company reported a gross profit margin of 22.85%.

When compared to the other companies in our sample, The 2.87% improvement in y/y quarterly gross margins is the highest increase for our sample of companies, beating companies like Frisch's Restaurants (-0.03% decline) and Denny's Corporation (-0.04% decline).

Reason #4: Improving Cost Structure

Biglari Holdings managed to reduce the impact of its operating expenses during the most recent quarter. The company's operating expenses, expressed as percentage of revenue, came in at 91.37% during the most recent quarter, vs. 96.77% reported in last year's corresponding quarter. The -5.4% change in the company's OperatingExpenses / Revenue ratio is the biggest change in our sample of companies.

Reason #5: Good Inventory Management

The company's Sales/Inventory ratio increased from 24.53 to 27.38 during the most recent quarter. This is the second biggest ratio increase for all the companies in our sample. Only O'Charley's did better, increasing its Sales/Inventory ratio from 18.97 to 22.85 during the same period.

Of course, use these ideas as a starting point for your own analysis...

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.