Well, the cat is out of the bag. The Spicy Pickle idea is out there, and there are probably thousands of potential investors who will see the video and read about it this weekend.
For the most part, investors who got an early look at the video seem to have been interested in investing in the stock, so I have to make the assumption there will be many more interested investors looking to take a position.
For the first thirty days, SPKL had traded very nicely, with the stock easing up slightly, and the volume increasing slowly but surely.
On Friday the stock got a bit more heated up than I would have like to have seen. It was up 23% on 1.15 million shares of volume – a new record.
It would have been better if the stock had been a bit quieter, but the word is getting around on just how well this company is doing, and a groundswell of enthusiasm is coming directly from people who know the company and have eaten the food.
That having been said, I believe some caution is warranted on the trading side here. Many of the early shareholders are big believers in the company, and they don’t really have much interest in selling. Those that do have already had a fair amount of liquidity in the first 30 days of trading.
Therefore, when the stock opens for trading on Monday, it could get a little out of control. If there is a big spike, some early shareholders might find their profits irresistible, and supply could hit the market. Based on the way it traded on Friday, I suspect there is very little supply at these levels.
So, let’s take another look at this very short term chart:
The stock closed at around $.70 on Friday. I believe the company is worth $1 today, with lots of upside as they continue to expand.
If you invested the 1/2 hour as I suggested, you should have a pretty good understanding of the company.
If you want to own the stock, it is important to own it right. If the stock trades up like crazy on Monday morning, I would stay on the sidelines and wait for things to quiet down.
If it ramps up to $1 very quickly in the early going, you might want to wait for it to cool off. At this point, I would suggest a limit order in the $.80 to $.85 range. You might even want to wait a few days if the stock is trading much higher.
Alternatively, another good strategy might be to take a partial position in the early going, and leave some money on the sidelines for a pullback. If it doesn’t pull back, at least you will own some. If it does, you’ll be in a position to add at a lower level.
If you’re concerned about the 1.8 million IPO shares priced at $.40, consider Chipoltle Mexican Grill (NYSE: CMG). It was priced at $22 in January of 2006, but traded to $45 on the day it opened for trading. On Friday it closed at $113.90
There’s one more issue I would like to get out of the way right now. If you have looked at the disclaimer section for this idea, you know I have sold a few of my own shares already. I did this for two reasons- 1. because I needed some money, and 2. I was hoping it wouldn’t trade up too much before I had the chance to present the idea to OTC Journal members.
I will probably sell a few more shares because I could use the money, but I plan to keep the vast majority for 1 to 3 years.
I am interested in feedback from any OTC Journal readers who happen to have eaten at any of the restaurants. Please share your experiences with everyone else.
I will probably post another BLOG within the first hour of trading on Monday with some thoughts on how we are progressing, and what a sensible strategy might be. Thanks for taking an interest in this idea.
Comments and questions are welcome.
Investors might need to get a little pickled before purchasing this stock…
A 5% Royalty on a stock like this can amount to well ove 1/3 of the profits. Unlikely growth and revenue expectations will have investors looking for an exit at the first opportunity
Editor: Thank you for your comment. However, if you watched the video, there are interviews with the actual franchisees. For the most part, they are very happy. Quiznos has the same residuals, half the revenues, and there are thousands of them.
I have been doing this a long time. I have tried and tried to get in on the ground floor of one like this. I will roll every liquid dime that I can afford to risk into this one. Thank you very much for this best-of-breed pick.
Editor: It can still be risky, but thanks for the comment.
What is the risk of this stock versus any other of your picks and also, the overall upside potential? I’m not asking for a stock price, just a qualitative opinion. Thank you.
Editor: Despite the fact that most of the ideas I report on are microcaps, there are varying levels of risk within that category. We start by assuming a $.70 stock is risky by nature. In my view, SPKL is not one of my riskier ideas. Very simply put, the company will have 40 stores open by year’s end, and the cash flow from the residuals will put the company in a position where it won’t be burning much cash, if it at all. This is not temporary, it is permanent. From there, they start building more in 2008, and sooner or later they turn profitable and stay that way. That is the power of the franchising model. I believe the biggest risk here is simple market risk- the volatility in the market- market driven disasters can force prices down. Company wise, this would have to be categorized as one of our least risky ideas.
The fundamentals sound good and your projections sound reasonable but two things concern me.
1) SPKL looks and sounds like another version of Panera Bread.
2) The menu is very limited and the average check for a meal does not seem like it would compare to one at a full size restaurant.
I may be a little too critical because I ate lunch at a Panera Bread shop just one time. I didn’t really know what to expect when I entered but I do know I was very disappointed when I left. The menu was limited and the sandwiches were too fancy for my taste. I consider myself just an average guy and if SPKL is anything like Panera Bread I just cannot see myself or my family eating there. Just one persons opinion. That being said, Panera Bread seems to be doing just fine without my business.
Thanks,
Dave
Editor: Good question Dave- SPKL is a little like a Panera, but about 1/4 the size and 1/4 the cost to get one open. It is not as big and varied. It does have a fairly simple menu, but it is a little higher end = way higher end than a Subway or a Quiznos. The food comes faster- we try to serve everyone within about 4 minutes or ordering. All I can say is go try the food, and decide for yourself. And, you are right. Panera has been a very succesful franchise roll out, and a very successful stock.
Please elaborate on your last comment, “…Quiznos has the same residuals, haf the revenues, and there are thousands of them.” It may be redundant, but what residuals? Half the revenues of what? Sorry, but please clarify again. Thanks so much.
Editor: The average Quizno’s does something in the range of $300k to $400k in annual revenues. The average Spicy Pickle does something in the range of $500k to $800k, with a couple doing closer to $1 million. However, all Spicy Pickle and Quiznos pay residuals of 5%, and 2% joint advertising fee. I believe Quiznos is 5%- as is McDonald’s, Burger King, Taco Bell, and every one else. I’m not sure of the exact numbers for each one, but they all pay.
I’m drinking the pickle juice.
I like the the idea, I often am looking to go out and get a good quality sandwich.
You don’t mind paying for quality.
The 7% is a given as long as the people get the support and training and advertisement.
My IRA has taken on the pickle flavor.
Thanks for the introduction. Still hoping for CPNE to give us some return.
Lets have another glass of pickle juice.
Editor: Thanks for you interest in the Pickle. FYI- I have lost faith in CPNE, and just about out of it for good. I have written about this extensively.