Overheated At Lone Star?

Steak houses are no longer the restaurant du jour for most weight-conscious Americans. But one such eatery remains a star on the Street--Lone Star Steakhouse & Saloon. It's trading over the counter at 31 a share, with an eye-popping multiple of 93, based on a 1992 earnings estimate of 33 cents a share. The price-earnings ratio is still a rich 36, even when based on a 1993 estimate of 85 cents. Other high-growth restaurants command a p-e of 18 to 20. So the shorts are betting that the stock has nowhere to go but down.

"The company's growth has been phenomenal," and it has been aggressive in opening restaurants, notes restaurant analyst Roger Lipton. But other bulls concede that the stock is now "fully priced." At the stock's market cap of $427 million, based on 13.8 million shares outstanding, the market puts a value of $32 million on each of Lone Star's 13 restaurants. "That's monstrously high," says one money manager, who has started shorting the stock. The shorts in the stock now total 1.3 million shares.

"This type of multiple is insane for a restaurant," says one industry analyst. The downside is enormous, he warns, because it "no longer has room for any kind of disappointment."

One bull admits that although Lone Star is a rapidly growing, well-managed company, "you can't really be much of a bull at this point." If the company achieves its goal of opening 10 restaurants this year and 24 more next year, "the stock won't collapse, that's all," he says. "But if it stumbles, the shorts will triumph."