"Opportunity Knocks" is Launched!
As we move in to December, we’re ramping to the end of what appears to be a very successful year for the markets. Large and small caps alike have had solid returns for the year, and barring a negative random shock, we should ride right into the end of the year on these gains. As the names under coverage start to increase here at Opportunity Equity Research, I’m very glad that our initial ramp focus was in the consumer sector. The consumer space has been under pressure consistently over this past year with the constant fears of the Amazon effect on the retail side and tough competition, minimum wage increases and commodity fluctuations hitting the restaurant space.
May we highlight two specific names for your review in our first “Opportunity Knocks” issue. The first is The Joint (JYNT). I’ll keep this short and let you do the reading and further research. This one is a fall 2014 IPO that worked out well out of the gate. Then management ramped unit growth way too fast, burned through IPO cash and were replaced. The new team comes in, makes hard decisions to “right” the cash burn and balance sheet, and now appears to be on track with an exciting and differentiated business model that has years of unit ramp in front of them. High teens revenue growth in the retail space with the potential to more than quadruple units over time—learn about it here: www.opportunityequityresearch.com/coverage-list: The Joint (JYNT). An open-ended retail growth story that can’t be “Amazoned” away and has just moved in to a positive EBITDA position after years of losses—rare air.
Another name worth highlighting to you right now is a well-known retailer known for creating “experiences” for everyone that shops in their stores. Build a Bear Workshop (BBW) has really been hit hard as a stock, moving from trading at the $20 level in 2015 to $8 and change now. There is hardly a brick and mortar retailer that can say that internet competition isn’t hurting and changing their business model. BBW gets hit indirectly because Amazon can’t substitute what Build a Bear does, but they can take traffic from all of the malls that Build a Bear is in. What does BBW management do? Move out of malls to where the traffic is and change the potential profitability of traditional malls by negotiating better rents and offering a different footprint, “the Concourse” shop. Trading at roughly 4 times EV/Adj. TTM EBITDA, this one is attractive both from a valuation perspective and because they are walking in to easy comps in their biggest quarter vs. some one-time pressure from last year (Q4 numbers should look good-our opinion). Worth reading and learning about here: www.opportunityequityresearch.com/coverage-list: Build a Bear (BBW).
As we finalize a strong year, many institutional investors may find the consumer space particularly ripe for tax-loss selling to offset nice portfolio gains. This artificial and temporary pressure gives those looking for it opportunities to pick up stocks that others are selling at any price (there is a very real economic benefit for tax loss selling). Buying opportunities are there for those willing to dig and pull the trigger. BBW certainly can fall under this umbrella, two other timely recent adds to our coverage in the consumer space, sporting goods retailer Big Five (BGFV), and Buffalo Wild Wings franchisee Diversified Restaurant Holdings (SAUC), also are strong candidates for year-end tax loss selling (pressure that we are likely seeing right now) and are worth knowing.
Opportunity Equity Research’s entire goal is to bring attention in a new way to the hundreds of underfollowed (or poorly followed?) small and micro cap public companies. We might bring your attention to eight names before you see one that hits directly how you invest and is precisely what you are looking for in an investment, but that ninth name might just make your year. I love covering stocks, love thinking about them, love the constant puzzle they always are, and love trying to make money on them. The fees we charge to institutional investors are zero.
My hope is that over time, if you find some names are interesting and talk to the management teams/IR teams, please let them know Opportunity Equity’s work sparked your interest. Happy Alpha hunting (opportunities are out there) and good luck into year end!
The discussion of specific securities is for research purposes only and is not to be construed as an offer or the solicitation of an offer to sell or buy the securities mentioned. Please see our disclosure page on www.oppequity.com for a full list of disclosures.
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