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Pizza Inn (NASDAQ:PZZI) is an old pizza chain that operates more than 310 restaurants domestically and internationally. In June 2011, Pizza Inn opened a new quick serve pizza concept called Pie Five Pizza which has breathed new life into the company and the stock price.

Pie Five introduced the concept of quick serve pizza to the pizza market. A customer gets to choose a 9" thin or classic pan pizza, a sauce, and a variety of toppings. The pizza then goes through a small conveyor oven and is ready in less than five minutes. This fast casual concept for a pizza received one of the "Hot Concept" awards from the Nation's Restaurant News.

This concept has recently attracted attention of some restaurant industry veterans. In March the co-founder of Stonewood Grill & Tavern entered into a franchise agreement for 10 locations in Florida, and in April the former CEO of Applebee's entered into a franchise agreement for 10 locations in the Kansas City area. Since these agreements were announced, the stock price has almost tripled. I think this provides an excellent opportunity to short the stock if you can find shares available to short.

The fast casual concept works great for Chipotle (NYSE:CMG) but there is a lot more competition for pizza than there is for fast casual tacos/burritos. You can get a much larger Pizza from Dominos (NYSE:DPZ), Papa John's (NASDAQ:PZZA), or Pizza Hut (NYSE:YUM) for just a few dollars more than the $6.49 price for Pie Five's pizza. There are also buffet alternatives like CiCi's pizza and other regional buffet chains that offer all you can eat pizza for the same price as Pie Five. In addition, all four of the pizza chains mentioned have much larger advertising budgets than Pizza Inn and have been offering very competitive pricing for the last several years. I don't see any competitive advantage that Pie Five has over these chains.

This can be seen in Pizza Inn's financial results. In the last three quarters, Pizza Inn has reported flat revenue growth (Q3: 10.65 million, Q4: 10.87 million, and Q1: 10.55 million). Gross profit margin has declined each quarter (Q3: 20.28%, Q4: 16.28%, and Q1: 15.83%) and net income has declined each quarter (Q3: +0.05 million, Q4: -0.10 million, Q1: -0.12 million). Pizza Inn's financial results have been getting worse since Pie Five has come online.

Pizza Inn is set to report Q2 results in the next few days and unless they report stellar results, I expect a sharp correction, especially considering the stock price has tripled in just a couple of months. In addition, Pizza Inn recently filed a shelf registration to sell up to 3 million dollars worth of common stock. This is less than 5 percent of its current market cap but stock dilutions are usually priced at substantial discounts to the current market price and the stock price usually falls to the offering price or below in a short amount of time.

Pizza Inn has developed an interesting concept in Pie Five but awards and franchise agreements do not correlate to profitability. I think the 300% gain since the franchise agreements have been announced provide a perfect opportunity to short the stock. Subpar Q2 results and the shelf offering should bring the stock price back down to earth.

Source: Pizza Inn: Primed For A Sell-Off?