Get ready to sink your teeth into

Rubio's Restaurants

(RUBO)

, a restaurant-turnaround story with a twist.

The Mexican seafood operation has started to show solid same-store sales growth, setting it apart from many peers. The company has a strong balance sheet, a reasonable expansion plan and a stock that looks cheap by many measures.

Now for the twist: I think Rubio's looks like it could be an acquisition candidate for a biggie like

Yum! Brands

(YUM) - Get Report

or

McDonald's

(MCD) - Get Report

. Both fast-food giants have said that they intend to acquire and develop brands and concepts beyond their core focus, though neither has identified a specific target. But Rubio's restructuring progress and its promising demographics could make it a natural partner.

You have to appreciate where Rubio's has been to understand where it's going. Rubio's has recently expanded its menu and boosted its prices. Just for starters, those moves will probably help margins, but they could also accomplish something much more important: They could make the public think of Rubio's as a sitdown restaurant rather than a fast-food pusher. This is vital because it could reduce the company's need to sink scarce cash into costly ad campaigns.

In recent quarters, investors have seen signs that management's efforts are starting to take root. During the first quarter, Rubio's comps rose 1.8%, which is modest growth but far better than the red ink that marked Rubio's 2001 sales report. The stock has perked up as well, pushing into the $8-$9 range from around $4 a year ago.

Value investors will be happy to know that the company sports a terrific balance sheet, with almost no long-term debt, a book value of about $4.15, and roughly 80 cents a share in cash. It also trades at just 0.7 times sales, which is cheap when compared to Yum!, Mickey D's and

Darden Restaurants

.

As for expansion plans, the company expects to add between eight and 10 company-owned stores this year, on top of the 134 it already has. Rubio's will also push a franchising initiative that could give it a sweet annuity over time.

So with all that in mind, what's Rubio worth?

As a stand-alone I think the company has the potential to grow its annual earnings at 20% or better for the next three to five years. Assuming that's the case, I think there could be some more upside ahead in this stock.

For comparison's sake, take a look at

Wendy's

(WEN) - Get Report

recent purchase of a similar operation, the Baja Fresh Mexican Grill. Wendy's is paying $275 million in cash for 168 stores, or more than $1.5 million for each Baja store.

If we take that valuation and apply it to Rubio's, we get a price tag of about $200 million, or $22 a share. Of course, Baja has turned in several years worth of quarterly same-store-sales growth, while Rubio's has at best just turned the corner.

That said, I think that a potential suitor might be willing to pony up a little over $1 million per location. And divided over 9 million shares, that equates to a stock price of around $15.

Bottom line: Rubio's could be a great catch.

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In keeping with TSC's editorial policy, Glenn Curtis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Curtis welcomes your

feedback.