The Huge Rally In Kona Is About To Start

Sep.19.11 | About: Kona Grill, (KONA)

I have been watching Kona Grill (NASDAQ:KONA) for some time now and it looks like it is providing investors a great opportunity to invest in the next big growth story. Company management is at the top of my list when I look for good small cap plays.

I expect great things from new CEO, Michael Nahkunst. He has a strong history of success in the restaurant industry turning brands into growth machines. I expect Michael Nahkunst to get Kona back into growth mode just the way he did at Cheesecake Factory (NASDAQ:CAKE), BJ's Restaurants (NASDAQ:BJRI), and Chili's (NYSE:EAT).

Here are more highlights I like about the Kona story:

  • Restaurant sales in the second quarter increased 13.6% to $25.8 million, compared to $22.7 million in the same quarter the previous year.
  • Same store sales increased 9% mainly driven by stronger traffic and an increase in average guest check amounts. I believe recent improvements in the menu and marketing will continue to increase same store sales.
  • Net income in the second quarter increased 199% to $800,000 compared to the same quarter last year.
  • Kona will close the underperforming West Palm beach location. I look for further cost cutting initiatives as the company looks for ways to improve profit.

I like the direction that Kona is heading and attribute the recent selling to profit taking after such a swift run up. I'm bullish on Kona and I'm looking to buy at this $5 area. I have a target of $8 which is a retest of the most recent pivot high. This is about a 60% upside target.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in KONA over the next 72 hours.