Looking Back on Wendy's

NEW YORK ( TheStreet) -- Legendary Hall of Fame pitcher Satchel Paige, who last pitched in the major leagues at age 59, famously warned, "Don't look back. Something may be gaining on you."

Although there is something to be said for that sentiment as it applies to life, when it comes to investing, "looking back" can sometimes be an important learning tool. We all make mistakes as investors, and sometimes we get it right, but it is important to garner what we can from either instance.

As I downed one of Wendy's ( WEN) new offerings, the pretzel bacon cheeseburger, yesterday, I ignored old Satchel's advice, and relived my decision last summer, to part ways with my Wendy's position after a three-year-plus holding period.

I'd been an early proponent of Wendy's following the company's 2008 merger with Arby's, but the ensuing years were challenging. Although Wendy's restaurants performed decently, Arby's same-store sales fell off a cliff, and the company just could not seem to get its engine hitting on all cylinders.

Wendy's released some new products, cut some costs and brought in new management, but the overall results were mediocre at best.

The company finally gave up on Arby's, selling all but a small stake in 2011. But even that move, which freed the company from what had been an anchor, had little effect. The stock all but traded sideways for four years, and I'd had enough by early last summer. Value investors are known for their patience, but mine had run out by that point. I moved on, and deployed that capital in other opportunities.

Fast forward several months, and Wendy's has recently gone on a tear. In fact, shares have risen more than 65% year to date and are currently trading at a five-year high.

What has changed? For one, the company's margins have been improving, and it has been reporting better results. Last quarter, earnings came in at 8 cents per share, ahead of the 6 cent consensus estimate. The company also recently raised its dividend 25%, to 5 cents. That, to me, may signal a level of confidence by management, and also provides a decent 2.5% yield.

WEN Chart WEN data by YCharts

But perhaps the biggest news is that Wendy's has started selling off company-owned stores, and it plans to sell a total of 425 units. My perceived value of company's owned real estate was one of the reasons I'd originally taken a position in the first place, but until now, the company had made no attempts to exploit those assets.

This new initiative will not only provide the company with cash to help in its efforts to redesign stores and perhaps pay down debt, but will also increase the number of franchises, moving the company further in that direction.

Franchises require less capital than company-owned stores, and the margins are typically much higher. Sometimes termed "re-franchising", it is a move that has helped to turn around casual restaurant chain Denny's ( DENN).

Although many of the new products rolled out when I was a shareholder seemed to gain little traction, I wonder about this new pretzel bacon cheeseburger. It's one of the best fast food burgers I've had in quite a while, but it is also pricey, at about 5 bucks. Time will tell, but I'll no doubt consume a few more of these despite the price.

The bottom line here is that I missed out on a nice run by Wendy's because my patience ran out. After nearly four years of waiting, I lost faith in company management and moved on. There are no regrets, and I'm actually happy for the company. It has always put out a quality product, and it's good to see it prospering.

At the time of publication, Heller had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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