One of the major positives of looking through the roster of insider buys is learning about little known companies. Most of the time it’s like walking through Times Square at 5 pm on a workday. A bunch of passersby that might catch your eye for a moment, but then just part of a faceless, out of sight out of mind mosaic of similar experiences.
But then, there are some exchanges that are like love at first sight, fresh breath commercials. Eyes meet, the shy look away, followed by an explosion of irresistible desire, and then… the kiss. Finding new ideas might not be as exciting as a new love interest but can be nearly as rewarding for the passionate investor.
It’s especially true when your mundane, week to week tasks uncover potential ground floor opportunities. Get ready, here comes the breath mint.
On December 16th, Lionheart Equities, LLC and BurgerFi International, LLC (BFI) Executive Chairman, Ophir Sternberg each purchased 1 million shares of BFAI at $10. (1) The company went public on December 17th through a special purpose acquisition company (SPAC). SPACs have been around for a while but have become a big deal starting in 2019. OPES Acquisition Corporation is the SPAC that merged with BFI.
BurgerFi is among the nation’s fastest-growing better burger concepts with approximately 125 BurgerFi restaurants domestically and internationally. The company is a fast-casual “better burger” concept, delivering an all-natural premium burger experience in a refined, contemporary environment and through seamless digital ordering channels.
Here’s a quick rundown of the recognitions and accolades BFI has received:
- Placed in the top 10 on Fast Casual’s Top 100 Movers & Shakers list in 2020
- Named “Best Burger Joint” by Consumer Reports and fellow public interest organizations in the 2019 Chain Reaction Study
- Listed as a “Top Restaurant Brand to Watch” by Nation’s Restaurant News in 2019
- Included in Inc. Magazine’s Fastest Growing Private Companies List
- Ranked on Entrepreneur’s 2017 Franchise 500. (2)
After doing some analysis, Shake Shack Inc. (SHAK) appears to be the best comparable. Shake offers hamburgers, hot dogs, chicken, crinkle cut fries, shakes, frozen custard, beer, wine, and other products. As of December 26, 2018, it operated 208 Shacks, including 124 domestic company-operated Shacks, 12 domestic licensed Shacks, and 72 international licensed Shacks.
Although SHAK does considerably more in sales than BugerFi, it doesn’t mean they both can’t trade at similar valuations, most specifically at price to sales (P/S). As we type, Shake Shack trades at 6.32 times sales. (3)
In a recent investors’ presentation, BugerFi projected 2021 revenue of $160-$165 million and $200-$225 million in 2022. Taking the mid-point sales number for 2021 and 2022 and applying SHAK’s price to sales ratio generates potential target prices of $58.06 in 12-18 months and $75.82 in the next two-to-two-and-a-half years. As of this keystroke, the hamburger chain trades at $14.80. At half of SHAK’s price to sales valuation, BFI would still offer some solid upside from its current level at $29.03 for based on the upcoming year’s anticipated sales and $37.96 for 2022.
Overview: Investing in relatively unknown companies can, at times, reward investors with outsized gains. With a relatively small number of shares outstanding and very little institutional ownership, BurgerFi International, LLC (BFI) could attract a lot of Wall Street money if they hit their sales targets.
BFI is an established business and has received acclaim from reputable media outlets. Of course, the next few months to a year could be difficult for the restaurant industry with the uncertainties of COVID.
Investors that don’t mind the risk might consider BurgerFi International Warrants (BFIIW). The warrants’ term is five-years (December 2025) with an exercise price of $11.50 (That means you have to pay $11.50 to convert the warrant into a single share). (4)
Oddly, at the current $2.50, the warrants are trading at a discount. You could buy the warrant at $2.50, convert to BFI stock at $11.50 for a total cost of $14 and turnaround and sell BFI at $14.80, all prices as of the close of business on Christmas Eve. These price discrepancies (arbitrage is the Wall Street lingo) don’t usually last too long.
1 – https://www.secform4.com/insider-trading/1723580.htm
2 – https://finance.yahoo.com/news/burgerfi-goes-public-following-completion-120000926.html
3 – https://finance.yahoo.com/quote/SHAK/key-statistics?p=SHAK