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BOSTON (TheStreet) -- David Einhorn, founder of value-oriented hedge-fund firm Greenlight Capital, gained notoriety by publicizing short positions in Allied Capital (ALD) in 2002 and Lehman Brothers in 2007.

Now he has another target, but this time he's optimistic. His pick? Small-cap restaurateur

Einstein Noah


, whose stock ticker denotes its signature product. The investment totals $106 million, representing a 66% ownership stake.

New York-based Greenlight has returned 22% annually since its 1996 inception, more than four times the pace of the

S&P 500 Index

, a benchmark for U.S. stocks. Other notable holders of Einstein Noah include


(JPM) - Get Free Report


Royce and Associates

, a subsidiary of

Legg Mason

(LM) - Get Free Report

. Their investments represented 3.3% and 4.4% of shares outstanding in the latest quarter.

Einstein Noah is scheduled to report fourth-quarter results Thursday. Its third-quarter profit multiplied 13-fold to $61 million, or $3.65 a share, even though revenue declined 0.9% to $100 million. The company benefitted from a massive deferred tax benefit and redemptions of preferred stock. Excluding one-time gains, business improved sequentially, but suffered year-over-year weakness.

Comparable-store sales, including company-owned stores and franchises, declined 1.8%. Gross profit dropped 2.9% to $19 million. But franchise and license-related revenue gained 17%, and the balance sheet demonstrated marked improvement. Although cash halved to $12 million, Einstein Noah's total debt decreased by 19% to $117 million. Book value swung into positive territory.

Einstein Noah's stock is undervalued relative to those of restaurant peers. It trades at a price-to-projected-earnings ratio of 12, a price-to-book ratio of 3.3, a price-to-sales ratio of 0.5 and a price-to-cash-flow ratio of 5.8. To clarify, the stock is 56% cheaper than restaurant peers based on projected earnings, 37% cheaper based on book value, 79% cheaper based on sales and 48% cheaper based on cash flow.

However, the profit spread is a mitigating factor. The quarterly gross margin hit 19%. By comparison, fast-food leviathan


(MCD) - Get Free Report

posted a third-quarter gross margin of 45%. Small-cap rivals


(CMG) - Get Free Report


Buffalo Wild Wings


notched third-quarter gross margins above 25%.

Greenlight's Einhorn has held 11 million shares of Einstein Noah since the second quarter of 2007 and, as a result, suffered an estimated loss of 29%. Will this stock be remembered as his perennial laggard or will the company turn things around?

In one sense, it already has. Despite the recession, the company has increased earnings per share 75% annually over the past three years. It's an attractive time to buy this lesser-followed name.

-- Reported by Jake Lynch in Boston.