Granite City Food & Brewery (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
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 |
| 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 | -- | -- |
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.
