-$21.90
$2.40
bear -$21.90
base -$5.30
bull $2.40
margin of safety $1.00
market price* $1.21
Business condition attached to the margin of safety
The Series A preferred stock is redeemed or refinanced at an all-in annual cost of about 10.5% or less (or retired with equity or sale proceeds), AND trailing-four-quarter operating cash flow before working-capital swings stays at or above roughly $55 million with upkeep capital spending near $30 million, so that owner earnings after all interest and preferred costs are positive.
The ONE Group owns and operates upscale "energetic dining" restaurants in the United States. At the end of 2025 it had 159 venues: 31 STK steakhouses, 86 Benihana teppanyaki restaurants, 23 Kona Grills and 13 RA Sushi restaurants, plus a handful of hotel and casino food-and-beverage venues. Revenue was $806 million in 2025, over 99% of it from US restaurants; the rest is license and management fees on STK and Benihana venues abroad. The company bought Benihana's owner in May 2024, which roughly doubled its size, and the business as it exists today should be judged only from that point. The central fact for a common shareholder is how that purchase was paid for. It was funded with a $350 million term loan (interest at SOFR plus 6.5%, due May 2029) and $160 million of Series A preferred stock. The preferred carries a dividend that starts at 13%, compounds, and rises over time. It is paid in additional stock rather than cash, so it never shows up in the cash flow statement, but it is a real and growing claim that ranks ahead of common shareholders. That claim grew by $19.1 million in 2024, $33.2 million in 2025 and $19.3 million in just the first half of 2026. The company can first buy the preferred back in 2027, for about $247 million. The holders can demand repayment from July 29, 2029, which is also when the term loan comes due. Earnings. We measure owner earnings: operating cash flow with working-capital swings removed, less stock compensation, less the spending needed to keep the restaurants in shape. After the preferred dividend, this came to about -$1.65 per share in both 2024 and 2025. Both years were distorted. They carried $22.5 million (2024) and $11.2 million (2025) of one-time Benihana deal and integration costs, and our standard formula for upkeep spending, which scales with revenue, reads the acquired revenue as ordinary growth. The 2025 reported net loss of $93.6 million is much worse than the cash picture. Most of the gap is non-cash: a $59.5 million tax charge that wrote off deferred tax assets and $10.6 million of impairments. Neither affects owner earnings. For the current level, we use the two most recent quarters. They agree with each other: operating cash flow was $21.7 million in the first quarter of 2026 versus $8.5 million a year earlier, and $33.0 million for the half versus $11.3 million. Part of that is seasonal collection of year-end credit card receivables. Setting that aside, we put normal operating cash flow at about $55 million a year, less about $4.5 million of stock compensation. The key judgement is upkeep spending. The company labeled $19.0 million of 2025 capital spending as maintenance, $7.4 million as remodels and $30.0 million as new restaurants. Depreciation was $43 million. We use $30 million in the base case, $26 million in the bull case and $43 million in the bear case. On that basis the restaurants earn about $20 million a year for shareholders before the preferred dividend. That is roughly $56 million before interest, against about $36 million of cash interest. The most recent full year shows no underlying growth in owner earnings per share (-$1.64 in 2024, -$1.65 in 2025). The better starting point we use for 2026 comes from the removal of one-time costs and from the two quarters of actual 2026 cash flow, not from assumed growth. The only growth we credit is the conversion of company-owned Kona Grills into Benihanas and STKs: one is complete, others are under construction, and each costs about $1 million, adding roughly $1-2 million a year. We give no credit to new STK openings. The company has opened them steadily, but always with borrowed or preferred money rather than its own cash, and it has now cut capital spending sharply. We also give no credit to the asset-light licensing pipeline or management's EBITDA targets. Base case: the company earns about $20-22 million a year before the preferred. The preferred compounds (about $39 million in 2026 and $43 million in 2027) until it is refinanced in 2028 with roughly $280 million of new debt at about 11%, costing about $31 million a year. Financing costs then exceed what the restaurants earn by about $9 million a year, permanently. Discounted at 6%, the stream left for common shareholders is negative: about -$5.30 per share, or roughly $175 million. In plain terms, the company appears to owe more than its business is worth to common shareholders. This is not because the restaurants lose money; they do not. It is because the debt and preferred cost more each year than the restaurants earn for the owners. Bull case: the 2026 cash-flow improvement holds, upkeep stays near the company's own 2025 figure, and owner earnings before the preferred reach $30-32 million. The preferred is bought back at its 2027 call for about $247 million, funded with new debt near 10.5% (about $26 million a year). About $6 million a year is left for common shareholders, worth about $2.40 per share. Bear case: the Grill brands keep shrinking. Their comparable sales fell by mid-single digits in early 2026 and they earned only a 4.5% restaurant margin in 2025. Cash flow slips back toward the 2025 level, and upkeep spending has to catch up to depreciation, leaving roughly breakeven before the preferred. The preferred compounds to about $330 million by the July 2029 demand date and must be refinanced near 12% alongside the maturing term loan. On that path the company owes far more than it is worth: about -$21.90 per share, a shortfall of roughly $730 million in today's money. In practice common shareholders would be wiped out in a restructuring. What would make this wrong: retiring the preferred much more cheaply than we assume, through equity or a sale of the company. Cash flow settling well above the first-half 2026 pace. Upkeep spending proving permanently closer to the company's labeled maintenance than to depreciation. We could not see the full first-half 2026 cash flow statement, so the split between working capital and underlying cash flow for that period is our estimate. The margin-of-safety price applies only after the preferred is retired or refinanced cheaply enough that owner earnings after all financing costs turn positive.