I've been fascinated by some of the recent "busted" IPOs, companies that went public, only to see their stock prices plummet, and the growth crowds shun them.
Among these names, one was recently voted USA Today's Reader's Choice best fast casual restaurant for 2022.
I finally took a position in BurgerFi (BFI) last week at $4.21/share, with the belief that it could be a good value at these prices, and perhaps the markets have become too pessimistic.
Headquartered in North Palm Beach, Fla., 120-location BurgerFi (not including its recent acquisition) is attempting to differentiate itself from the plethora of other burger joints by serving all natural, Angus and American Waygu Beef. It's not cheap, a cheeseburger will set you back 9 bucks, a burger with a Waygu and brisket blend (called the CEO) is just over $11. But what is cheap these days? And the ultimate question is whether the consumer will pay up for quality in this inflationary environment.
The company picked an interesting time to go public -- in the midst of a pandemic -- and this is far from a layup. It is about as speculative as I get, and it's taken awhile to pull the trigger. I was intrigued near year-end, when BFI was trading around $7, but it took another 40% drop to entice me into making a move.
After being acquired by special acquisition company (SPAC) OPES Acquisition, BFI went public in December 2020, and closed its first day of trading (12/17/2020) at $15.70. The following March, the stock got a small bump upon the announcement that Martha Stewart was joining the board. In June, BFI joined the Russell Microcap Index. However, in terms of the stock price, it's been pretty much all downhill. The shares closed at $4.33 on Friday, and are down 72% over the past year, and 31% year-to-date.
This past November, BFI acquired Anthony's Coal Fired Pizza & Wings, a chain with 61 locations in eight states, for $156.6 million. The deal included $53 million in non-convertible redeemable preferred stock, $28 million in common stock, and the assumption of $75.6 million in net debt. While we have yet to see a post-acquisition balance sheet, we do know that shares outstanding increased from 17.898 million to 21.263 million after the deal closed. I am estimating that the current enterprise value including the acquisition should be in the $200 million range.
When it made the acquisition, BFI expected that Anthony's would be accretive to earnings in 2022. Since BFI is covered by just one analyst, there simply is not a great deal of information, and not much reporting.
Back in January, the company did initiate guidance for FY2022, suggesting revenue in the $180 million-$190 million range, and "adjusted" EBITDA of between $12 million and $14 million. It expected to open 15 to 20 new franchised locations this year. The company should be reporting fourth-quarter earnings soon.
Is BFI a $15 stock, a $4 stock, somewhere in the middle, or even worth $0? Time will tell, but for me, this is a "dumpster dive," looking for a potential treasure where markets see only trash.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider BFI to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
