In just 11 trading sessions, Bridgford Foods (BRID) has fallen 33% from a 52 week high of $16.90 to $11.35. What the heck happened? There was no news, and you can't bame it on the stock market (the overall market actually went up in the same timeframe). My guess? Shares had simply gone up too far in too short of a time frame (nearly tripling in a seven month period). The stock required an ample dose of good old fashioned profit taking to rid it of its excesses. In fact , shares have nearly retraced 50% of those staggering gains, taking the stock back down to earth and restoring it to “value level “ status once again. The reality that volume actually compressed on the way down is encouraging. That's a typical sign that the retail investor is selling, rather than the smart money.
What’s next? The selling pressure should start to abate and a snap back to the $13.50 to $14.25 level could be in the cards by the end of the month. With downside risk minimal (about 10%) the shares exhibit a compelling risk reward scenario; one that justifies maintaining a long position, averaging down or opening a new position. There is no doubt that this decimation of price creates a golden buying opportunity. The selloff was completely overdone, considering the company’s strong fundamentals remain intact.
Earnings next month
BRID is expected to report its third quarter results near the middle of August via a 10 Q filing (the company does not issue press releases). In the previous year’s comparable quarter, BRID earned 11 cents per share on sales of $26.3 million. It delivered a gross profit margin of 42.6% while incurring SG&A costs of 35.7%. In the third quarter, the company should see a sales bump to the $27 million vicinity as well as a 130 basis point margin improvement coupled with a slight drop in its SG&A outlays. That being said, look for the company to grow its earnings over 50% to 17 cents. This earnings report should be the catalyst for the shares next leg up and a challenge of 52 week highs.
Disclosure: Long BRID