|Written by Rob Goldman|
Don't Give Up
We have been pretty negative on the market for over 2 months. While we aren’t yet bullish, there are reasons why you better get ready to step into new positions because we are getting close to a return to a bullish stance, again. The triggers for us are sentiment and valuation.
The Reverse is True
The Investor’s Intelligence Bull/Bear Ratio, which surveys Investment Professionals, is considered the standard-bearer of sentiment surveys, with nearly 50 years of history. The idea here is that after buying stocks people are bullish, and after selling, they are bearish. A ratio of around 2.0 is considered extremely bullish (therefore you should read it as bearish) and a ratio of around .6 is considered bearish (which should be viewed as bullish.)
Select Research: Hungry? This Stock Will Curb Your Summer Hunger
In recent months, we mentioned that the casual dining space could heat up. It has. We have a stock idea that dovetails nicely with Americans’ summer travel habits this year.
With the price of gas at low relative levels, U.S. vacationers are happy to pack up the van and car and drive to...wherever. In the past 2 years, the road trips were generally regional in nature. It is no secret that if you are on the road for an extended period of time in this country, there are certain restaurant chains you see along the various highways, begging you to come inside and eat. They include Cracker Barrel (NASDAQ—CBRL) and Bob Evans (NASDAQ—BOBE), which in our view, are great investments, despite their high stock prices.
However, there is one chain that from both the valuation and stock price perspective is cheap. I confess I really do not like it but a ton of people do.
Ladies and gentlemen, welcome to Denny’s (NASDAQ—DENN—$4.16), may I take your order. Denny’s has about 1500 franchised and 200 company-owned restaurants. Many of you know the story so I won’t go into detail. Here is what you don’t know.
Denny’s will generate about $500M in revenue this year and earn $0.29. The Company just 10 days ago announced a 6M share buyback which will reduce the shares outstanding by 6%. Chart looks great, and even at $5 the stock would only trade 17x CY12E EPS.
Many of you are likely familiar with the scandals in past years regarding racially insensitive incidents, which may have hurt the stock to a degree, but at current levels, it is trading at favorable multiple compared with its peers. The current 14x multiple is in the middle of the 13-16x range of the peer group.
Until next week…
Analyst: Robert Goldman
It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.
This report or newsletter does not take into account the investment objectives, financial situation, or particular needs of any particular person. This report or newsletter does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with the FINRA or with any state securities regulatory authority.
ALL INFORMATION IN THIS REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com.