Almost 20 years after going public, Famous Dave’s of America still hasn’t lived up to its promise.

Back in 1997, the company’s founder predicted having 500 restaurants, but nowadays Dave’s has only 187. The barbecue chain’s sales have been stagnant for several years, its profit growth anemic. Minnetonka-based Dave’s is on its third CEO in less than three years.

So why then is Dave’s stock trading at about $31, three times its price just two years ago, and with a valuation akin to the restaurant industry’s highfliers?

The answer lies in several hedge funds making massive purchases of Dave’s shares, and their confidence in Ed Rensi, a former high-ranking McDonald’s executive installed as Famous Dave’s CEO last year.

“There are a lot of changes being made at Famous Dave’s — new menu items, new formats,” said Alex Fuhrman, an analyst at Craig-Hallum who recently initiated coverage of Dave’s stock with a $50 price target. “The company is well on its way to running more efficiently.”

A lot of work remains ahead. Another analyst, Mark Smith of Feltl and Co., recently cut his rating on Dave’s stock to “sell,” with a price target of $19, after the company posted a poor fourth quarter.

“We don’t see any significant momentum,” Smith said. “I have been at a loss to figure out why anyone would pay $30 for this stock.”

Rensi said the weak numbers for 2014 belie big changes afoot. He’s overhauling the restaurants’ interiors and adding more “modern” menu items. The idea is partly to better appeal to millennials.

“We don’t want to lose the legacy that [company founder] Dave Anderson gave us, ” Rensi said. “But we want to become more relevant.”

Investors buy in

Anderson is long gone from Famous Dave’s management, but the master meat smoker’s ribs and brisket are still the heart of the menu. Dave’s is a staple in the Twin Cities, and has outlets across the country, particularly in Wisconsin, Illinois, California and Virginia.

But Famous Dave’s has never lived up to its growth potential, Smith said. “It’s been a mismanaged brand for the last 15 years or so.”

To fix that, the company’s board started at the top. In October 2012, board member John Gilbert was named CEO, replacing Chris O’Donnell, a veteran Dave’s executive who’d led the company for four years.

Gilbert, a marketing whiz, had been CEO of Vermont Teddy Bear, an online retailer of stuffed animals. But he exited Famous Dave’s with no explanation in February 2014, replaced on an interim basis by Rensi. Nonexecutive chairman Dean Riesen followed Gilbert four months later.

By the time Gilbert left, activist investors had built major stakes in Dave’s. Activists target what they see as undervalued companies and push management — sometimes vociferously — for change. Chicago investor Patrick Walsh began sinking money into Dave’s at the end of 2012. He was followed in 2013 by Blue Clay Capital Management of Minneapolis and New York-based Pleasant Lake Partners.

Pleasant Lake is now Dave’s top shareholder with a 12.9 percent stake. Walsh has sold off about 40 percent of his holdings over the past year but still owns 6.1 percent of Dave’s, according to data from Bloomberg. Blue Clay owns 6 percent.

More recently, yet another hedge fund — New York-based LionEye Capital Management — has been on a buying spree, and is now Dave’s second largest shareholder with an 11.2 percent stake.

Walsh and Blue Clay’s Adam Wright won seats on Dave’s board in 2013. Pleasant Lake’s Jonathan Lennon joined the board in 2014. Rensi, who shed the interim CEO title in May, said Walsh and Lennon recruited him to Dave’s.

Dave’s activist directors, all in their 30s, liked the 70-year-old’s track record in the restaurant business. “They are big fans of Ed Rensi and think he can turn it around,” Smith said.

LionEye officials did not return calls for comment, and Walsh, Wright and Lennon declined to comment.

In with the new

Rensi began his career in 1965 as a burger flipper at a McDonald’s in his native Ohio. He would become a classic McDonald’s success story, rising through store management and then the corporate ranks.

He ran McDonald’s U.S. operations in the 1990s before retiring in 1999 after a restructuring. Since then, Rensi has owned a NASCAR racing team and founded a small restaurant chain in suburban Chicago. He lives in the Chicago area, not far from McDonald’s headquarters.

Right out of the gate last year, Rensi ended Famous Dave’s policy of discounting many menu items, a drag on profits. The decision inflicted pain. The company’s sales in 2014 fell 6 percent to $149 million, partly as some discount-driven customers fled.

But analysts praised the move. “The problem with discounts: They’re a little bit like a drug,” said Bob Goldin of restaurant consultant Technomic. “You cheapen the image of the restaurant.”

Another of Rensi’s earliest acts as CEO was to start refreshing Dave’s restaurants, right down to new plateware.

The prototype work is being done at Chicago area outlets, particularly one in the suburb of Bolingbrook. New items have been rolled out on the bar menu there, including a pork rib that eats like a Buffalo chicken wing — “ ‘Buffaloed rib’ if you will,” Rensi said.

“We need to take that great smoked meat and incorporate it into modern menu items like flatbreads and tacos,” he said.

Rensi is working to modernize the restaurants’ interiors, too. Dave’s Americana kitsch — the license plates and antique fishing and hunting gear hung on the walls — is mostly on its way out. The company even opened up its Minneapolis warehouse full of Americana and sold as much of it as possible to Dave’s regular customers.

“It wasn’t that we didn’t like it,” Rensi said. But restaurants had a lot of vintage clothing on the walls that was not getting cleaned, he said. Rensi thought some of the aging, wall-mounted animal heads had seen their better days, too.

At the Bolingbrook store, Dave’s outdoors theme remains, but it’s a cleaner look, the kitsch replaced by photographs.

High stakes overhaul

Rensi went whole hog in Bolingbrook. The patio was expanded by 4,000 square feet, and the bar was extended. About 15 TVs were added, and the bar was stocked with about 30 different craft beers.

Rensi said he overspent by about 67 percent on the overhaul; five fewer TVs would have been fine, for instance. But the restaurant is a testing ground. And its successful elements are part of a big pitch to Dave’s franchisees.

“Franchisees are curious, they’re interested,” he said, “but they want to know what it’s going to cost, what it will mean to them.”

Rensi said he won’t have cost estimates for them until after June 1. Buy-in from franchisees is critical. About 75 percent of Dave’s restaurants are franchised, and the company is staking its growth on franchisees.

Wooing franchisees is far from the only challenge facing Dave’s. Beyond fast food, restaurants generally took a big hit from the Great Recession, and it’s taking a long time to climb back. Plenty of other restaurants also are trying to become more hospitable to millennials, not an easy task since they tend to shy away from chains, said Technomic’s Goldin.

Plus, so-called “casual dining” — sit-down restaurants like most of Famous Dave’s outlets — has been under pressure from “fast-casual” chains such as Chipotle Mexican Grill. Last year, fast-casual sales grew at a 9 percent to 10 percent pace, while casual dining grew 3 percent, according to Technomic.

Dave’s has a bit of a buffer against the fast-casual onslaught — the barbecue concept.

“I think barbecue is a different kind of eater occasion,” Goldin said. “Consumers look at it as a special treat and they have a lot of loyalty to their favorites.”

But barbecue has its own challenge. Unlike say chicken wings or hamburgers, barbecue means different things in different parts of the country; it’s not standardized. “It’s beef vs. pork, sweet sauce vs. spicy sauce, mustard sauce vs. tomato sauce,” Goldin said.

If Rensi’s plans don’t push Famous Dave’s forward, Smith said it’s not clear what the company’s newfound activist investors would do.

At its current valuation, Dave’s isn’t an attractive acquisition candidate. And Smith said he doesn’t think Dave’s is a potential real estate play, since the majority of its restaurants are owned by franchisees.

Finding an exit for the big shareholders won’t be easy. “These guys are fairly married to this stock,” Smith said.

Tyler Gieseke is a University of Minnesota student on assignment for the Star Tribune.