Overlooked Crumbs IPO Provides Great Play on New Niche Market

| About: Crumbs Bake (CRMB)
In the recent months of highly successful IPOS from companies like Yandex (NASDAQ:YNDX) and LinkedIn (NYSE:LNKD), a soon to be fast growing IPO has been overlooked. One of my favorite IPOS for 2011, Crumbs Holdings (NASDAQ:CRMB) just recently went public. The stock currently trades over the counter but is looking at joining the Nasdaq or AMEX soon.

The company was founded in 2003 and represents the largest cupcake chain in the country and only public play on cupcake shops. Cupcake shops is a new niche market primarily in big cities that caters to everyone from moms, celebrities, kids, and businessmen and women. Other competitors are Sprinkles, based in Los Angeles, with ten locations, Georgetown Cupcakes with one location in Washington DC, and Magnolia Bakery with three locations.

The company owns 37 stores in 6 states currently. The company plans to use the proceeds from the IPO to expand its base of stores to new territories. The company lists the average cost of a new store at $300,000 with a cash payback of fifteen months. The current stores are in the following:

  • 18 in New York
  • 6 in California
  • 4 in New Jersey
  • 4 in Connecticut
  • 2 in Washington DC
  • 1 in Illinois
Also according to the company's website 6 stores are opening soon. These stores will be in current markets as follows:
  • 4 in New York
  • 1 in Washington DC
  • 1 in Illinois
The company plans to open 14 to 16 stores in 2011, in new markets such as Dallas, Atlanta, and Denver. In 2012 the company will open 38 to 42 stores entering new markets like San Francisco, Philadelphia, and Boston. The company's long term goal is to have 200 stores open by 2014.
Same store sales open at least one year have grown double digits for the last eight years. In 2010, the company sold thirteen million of its more than fifty varieties of cupcakes. Cupcakes represent seventy eight percent of sales. Other parts of the revenue are made up of danishes, muffins, scones and cookies. The company has a catering platform that could expand and increase sales dramatically as well.
Crumbs is in a niche market on its own as far as publicly traded companies goes. The closest competitors I have found are Panera (NASDAQ:PNRA), Starbucks (NASDAQ:SBUX), Einstein Noah Group (NASDAQ:BAGL), and Krispy Kreme (KKD).
Here are the most recent earnings estimates, market caps, and price to sales ratios of the comparable companies:
Market Cap
Forward Earnings
$3.6 billion
$26.9 billion
$238 million
Krispy Kreme
$551 million
$7.8 billion
$57 million
Crumbs provided projected sales of $40 to $45 million in 2011, and $78 to $83 million in 2012. The company has 4.5 million shares outstanding. The estimated earnings are expected to be $3.5 to $4.4 million in 2011 and $10.2 to $11.3 million. The table shows at Friday's close of $12.70 what the shares look like in the next two years on an earnings basis.
Earnings Per Share
Price to Earnings
Price to Sales
2011 Low
2011 High
2011 Average
2012 Low
2012 High
2012 Average
As you can see from the table shares begin to look extremely attractive while looking at the future earnings. The company has a very aggressive expansion plan set forth that will expedite sales and earnings.
Using the comparable companies here is the averages put place on Crumbs shares.
  • 19.5x 2011 average sales = $17.16
  • 19.5x 2012 average sales = $46.61
  • Price to Sales of 1.68 x 2011 average = $15.87
  • Price to Sales of 1.68 x 2012 average = $30.05
Averaging the price to earnings with price to sales sees shares hitting $16.51 in 2011, and $38.33 in 2012. Even with low estimates shares should double by the end of 2012. This stock could be a home run as this niche market is likely here to stay. The stock and company will have its doubters because of Krispy Kreme’s historical run up and major drop from $50 to $3.50. Do yourself a favor and take a chance on this speculative buy and reap the rewards in a few years.

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