In February of 2012, I pointed out a small restaurant company that traded over-the-counter. At the time, shares of Diversified Restaurant Holdings (BAGR) traded for $3.10. In the 15 months since that article, shares have increased 134%. The rise comes from an increase in restaurant units and a move to a major stock exchange.
Buffalo Wild Wings (NASDAQ:BWLD)
Diversified Restaurant Holdings began as a franchisor of Buffalo Wild Wings (BWLD) locations in Michigan and Florida. The company has expanded and now has a total of 34 Buffalo Wild Wings locations consisting of:
In August of 2012, Diversified Restaurant Holdings acquired 8 Buffalo Wild Wings locations in Indiana and Illinois. The purchase price of $14.7 million valued the locations at a little under $2 million each. The more important factor is it expanded Diversified Restaurant's base of Buffalo Wild Wings from two states to four. The move also gives Diversified a base in two states it hopes to franchise its newest restaurant concept in.
Diversified Restaurant has an area development agreement with Buffalo Wild Wings. Under the agreement, Diversified has to open 32 Buffalo Wild Wings. From the acquisition in Indiana, the company also has to open an additional location in that region. In total, Diversified has to open 13 additional Buffalo Wild Wings locations. By 2017, the company would have 47 Buffalo Wild Wings locations open in four states.
Diversified Restaurant Holdings founded the Bagger Dave's concept. The full service, ultra casual restaurant offers diversification away from the Buffalo Wild Wings locations and the pricing swings of chicken. Bagger Dave's has grown from one location to 11 locations in three states. Here are the current locations:
- Ann Arbor, MI
- Berkley, MI
- Bloomfield, MI
- Brighton, MI
- Cape Giardeau, MO (franchised)
- Cascade, MI
- East Lansing, MI
- Grand Rapids, MI
- Grandville, MI
- Holland, MI
- Indianapolis, IN
- Novi, MI
- Shelby Township, MI
There are also four locations that are coming soon. Two locations will be in Michigan (Detroit, Traverse City), while the other two will be in Indiana (Avon, Greenwood). Of course, those are the announced locations. Diversified Restaurant Holdings plans to open 8 Bagger Dave's locations during fiscal 2013. Diversified Restaurant Holdings believes it will have 50 Bagger Dave's locations open by the end of 2017. In February, I pointed out the company's plans to franchise Bagger Dave's locations in Michigan, Indiana, Ohio, Illinois, Kentucky, Wisconsin, and Missouri.
Recently, Diversified reported record first quarter earnings. In the first quarter of fiscal 2013, revenue grew 52.6% to $27.1 million. The increase was powered by the addition of eight restaurants plus the eight acquired Buffalo Wild Wings locations. Diversified also saw same store sales rise 3.5% in the first quarter at previously opened locations. Net income was reported as $0.2 million, representing earnings per share of $0.01.
Move to Nasdaq
Diversified Restaurant Holdings' shares have also increased in value thanks to more notice on a major stock exchange. The company changed its symbol and moved from the over-the-counter market to the Nasdaq. The move was praised by the company and has helped shares hit new highs. Michael Ansley, president and CEO of Diversified Restaurant Holdings had this to say of the move:
We believe the move to NASDAQ increases the visibility and liquidity of our shares and will greatly broaden our potential shareholder base as we continue to execute on our strategic growth initiatives.
Analysts on Yahoo Finance estimate Diversified Restaurant Holdings will earn $0.12 per share in fiscal 2013. Estimates from analysts call for revenue of $113.45 million for the fiscal year. In fiscal 2014, analysts expect earnings of $0.20 per share from $141.40 million in revenue. From their first quarter earnings, Diversified Restaurant Holdings is estimating it will report full year revenue between $110.0 million and $115.0 million.
Shares of Bagger Dave's have increased to their current level above $7. Over the last 52 weeks, shares have traded between $3.50 and $7.65. The company trades with a small market capitalization of $188 million.
I pointed out in February that investors should get in at a price point around $3. Those who bought in during 2012 have been pleasantly rewarded. In that article I said:
Buy this stock and ride the cash flow from Buffalo Wild Wing's success while having the potential for a home run in the Bagger Dave's growth.
As of today, Diversified Restaurant Holdings has 45 restaurant locations in operation. By the end of 2017, the company plans on having 97 locations open. Over the next four years, Diversified will more than double its restaurant count. Keep in mind that additional Buffalo Wild Wing acquisitions or franchise agreements for Bagger Dave's could accelerate this unit growth pace. Instead of investing in a proven restaurant concept with a dividend, take a chance on this growth stock that has the steady revenue from a proven concept to fuel its growth.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BAGR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.