Has Ruth's Hospitality stock worn out its welcome?

By Mihir Dalal

BANGALORE (Reuters) - Shares of Ruth's Hospitality Group Inc (RUTH.O) have risen nearly four-fold in the past five months as the company posted higher-than-expected profits in two consecutive quarters on reduced costs, and said it would focus on reducing debt.

However, the operator of upscale steakhouses, which has experienced falling customer traffic in the recession, said on Friday trends in July had not really improved from the second quarter and that it was still having a hard time recapturing lost traffic.

Given that sales have continued to slide, should investors now pull back on Ruth's stock?

"WELL-DONE"

"Business travel is likely to remain very weak over the next two quarters. More than the average restaurant, Ruth's is dependent on business travel for dragging traffic into its restaurants," said S&P Equity Research analyst Mark Basham, who has a price target of $2 on Ruth's.

"Traffic is down in the high single-digit range, and it's not coming back."

Piper Jaffray analyst Nicole Miller Regan, who has an "underweight" rating on the stock, said the company's EBITDA (Earnings Before Interest, Tax, Depreciation and Ammortization) growth was constrained.

Partly due to Ruth's "concept evolution toward a lower average check, store-level margins are unlikely to expand from current levels," Regan said in a note dated August 3.