Profiting from the Cracker Barrel Feud

NEW YORK (TheStreet) -- The plot continues to thicken at Cracker Barrel (CBRL), which happens to be my favorite chain restaurant.

By way of background, I really like the food and the atmosphere (sometimes to my family's chagrin), and believe that the company has created one of casual dining's greatest, most unique brands. It's about as close as you can get to country-style food in a chain setting and the retail stores attached to each location, which essentially serve as a glorified waiting room, set it apart from the very crowded and competitive casual dining space. Those retail stores have also caused some controversy, but more on that later.

As an investor, you have to be careful about falling in love with a particular company or product (as you might believe that I have with CBRL), and jumping to the conclusion that it's also a great stock. I've written countless times about the disconnect between a seemingly great company and its' valuation; we've seen that recently with Facebook (FB). In Cracker Barrel's case, I believe there is value there. Perhaps a great deal.

It is a name that I've owned outright in the past and one that I sold after a very nice run-up a couple of years back. I still have exposure to the stock, although not directly, and that's where this story is getting interesting.

CBRL data by YCharts

Cracker Barrel has been the target of an activist investor, Biglari Holdings (BH), a publicly traded company that is the capital allocation vehicle of hedge fund manager Sardar Biglari. Biglari Holdings has amassed a 17.5% stake in Cracker Barrel, and has been seeking changes at the company and representation on the company's board of directors.

Specifically, Biglari points to declining operating income per store, and believes that it could be much higher. He's also been displeased about the lack of transparency regarding performance of the retail business, which leads me to believe there's skepticism about devoting so much space to retail. (There's also a Web site, enchancecrackerbarrel.com, devoted to the cause, which contains letters sent to Cracker Barrel shareholders, and management.)

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