Granite City Food & Brewery: Did CIC Equity Invest Well?

Jan. 6.11 | About: Granite City (GCFB)

Granite City Food & Brewery (OTCPK:GCFB) jumped for the second day, up almost 100%. There must be a good reason for an equity firm to invest $9 million in the company (see here). Does it see hidden potential? This is a huge amount for a company with a market cap of only $36 million. The equity firm also took in $10 million or about a third of the company’s debt.

Equity firms, like private equity, take stakes in companies, hoping to sell their stake later for a profit. In a sense, the firm basically owns ¼ of the company. That is a big stake to take, and it is doubtful that CIC Equity did not do their due diligence before investing in the company.

The question is: Does it see something the average investor doesn’t? They are basically insiders, and I always say, “Insiders know more than you.” So what did they see?

Well, a chart of its maximum history shows that form 2004-2007 the average price was about $33 a share, about 6-fold from a current $5.01 a share.

click to enlarge

Click to enlarge

Source: MSN Money

The 14-period RSI shows that it is at the same peak made seven times before 2007. Further, there is little correlation between the price movement and the RSI. Therefore, even at a high RSI, the stock may not pull back.

Lastly, fundamentals look enough good, though not great.

G%

year over year revenue quarterly growth (%)

P/B

price/book

Gross

Gross margin

PEG

price/earnings/growth

Oper

operating margin

R/S

revenue/share

P/S

price/sales

%

% short

Click to enlarge

Price

G%

Gross

Oper

P/S

P/B

PEG

R/S

%

GCFB

$5.01

3.70

13.5%

-0.9%

0.33

6.04

--

$12.13

0.1

Industry

--

9.30

25.8%

6.4%

0.67

--

1.33

--

--

Click to enlarge

The most important thing I see is that the revenue per share (R/S) is about 2.5 times the price. Plus, the price is about a third of sales.

Perhaps CIC Equity made a good move. Should you?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.