Forget Shake Shack, Chanticleer Could Provide More Than A 2X Return

Summary

  • Chanticleer is my top pick in the hot restaurant sector, trading at an 80% discount to peers.
  • The current rights offering should be a game changer for Chanticleer because it could allow the company to turn profitable next quarter.
  • The company is in hypergrowth mode with year-over-year quarterly revenue growth exceeding 400%.
  • Chanticleer is trading at a .5 price to sales ratio, well below the 3.8. peer average.
  • Chanticleer is expanding its presence in the very profitable better burger space, which should add significantly to the company’s bottom line.

I have been aggressively buying shares of Chanticleer Holdings (HOTR) based on the company’s year-over-year 473% quarterly revenue growth, potential near-term profitability, and ridiculous level of undervaluation. The results of the just completed rights offering will be announced early next week and could provide a powerful catalyst for shareholders.

This company is completely under Wall Street’s radar, and should provide more than a 100% return.

Acquisition strategy could turn Chanticleer profitable next quarter

Chanticleer has been acquiring hidden gems in the restaurant sector, and this strategy could generate profitability next quarter. Chanticleer is following a similar growth strategy that Opko (OPK) successfully implemented; growth by acquisition. I first covered Opko when it was trading at $4, and it is currently trading at over $14, primarily as a result of Dr. Philip Frost well-managed acquisition strategy.

Chanticleer is trading at an 80% discount to peers and if the current acquisition plans are finalized next week, this $2 stock could be valued above $15 within 12 months.

Chanticleer’s business

Chanticleer owns and operates multiple restaurant brands including Hooters, American Burger and Just Fresh. The Company owns all or part of the Hooters franchise rights to develop and operate Hooters restaurants in South Africa, Australia, Europe, and the Pacific Northwest. But it’s the better burger segment that really has me interested in Chanticleer.

Chanticleer is conducting a game changing rights offering

With the goal of preserving the company’s $18 million in NOLs, Chanticleer offered shareholders the right to buy shares at $2. This offering is intended to raise the cash needed to make accretive acquisitions. The currently planned acquisitions will significantly grow Chanticleer’s top line revenue, and could take the company to profitability, almost immediately.

The results of the rights offering will be announced early next week, possibly as early as Monday, and positive results should be a strong catalyst for the share price.

Better burger restaurants are the holy grail of profitability

If the current rights offering is successful, which will probably be the case, Chanticleer will buy all The Burger Joint restaurants, including 80 franchises under agreement. This will significantly increase Chanticleer’s presence in the very profitable $2.4 billion better burger space. If you haven’t been to a better burger restaurant yet, you’re in for a treat, because the burgers, fries, and milkshakes are a league above most fast food restaurants.

But what I really like about this space is that the profit margins are much higher than most fast food restaurants. In general, the expenses are about the same as a typical fast food restaurant, however you are paying slightly more for some ingredients. In other words, organic beef is more expensive than nonorganic. But here’s the kicker; you’re able to charge 3 times what a typical fast food restaurant charges, hence the better margins.

It’s a much improved business model over the traditional fast food restaurants, and because of the superior food quality, the better burger restaurants in my neighborhood are usually packed with lines out the door. On top of that, these restaurants are now trendy, which only magnifies the growth and profitability potential.

Chanticleer is severely undervalued when compared to peers

One of the best ways to value companies is to use a price to sales ratio. McDonald’s, the gold standard in burger territory has a price to sales ratio of 3.3. Shake Shack’s price to sales ratio is 4.97 and Zoe’s is 3.9. Chipotle has a price to sales ratio of 4.9. On the other end of the spectrum, we have Wendy’s which has a price to sales ratio of 1.9. The average price to sales ratio for all these companies is 3.8.

1 2 3 4
View single page >> |

Disclaimer and disclosure: It is probable that the author and his associates have a position in the subject securities consistent with the opinion ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.