Kona Grill Cooks Up Strong Profits, Huge Upside

| About: Kona Grill, (KONA)

We enjoyed an excellent 40% move on my last article on Kona Grill (NASDAQ:KONA). The play rallied much faster than I expected, as the company's earnings performed much better than many investors expected. We took profits near the top of the move but it looks like Kona is once again giving investors an opportunity to invest in its great future.

This pullback is mainly from investors taking profits after a sharp run-up. I expect the company to continue to execute on its plan to cut costs and increase margins. The new CEO, Michael Nahkunst, is doing an amazing job turning the company around.

The company increased guidance on same-store sales growth to 9% from 6% quarter-over-quarter. The company also increased its net income guidance to $500,000 to $600,000 or 5 to 6 cents a share. This is an increase from $100,000 to $300,000 or 1 to 3 cents a share. The company is estimated to earn 14 cents per share this year, compared to losses of 17 cents per share last year.

The company also recently closed its underperforming Sugar Land, Texas, location after negotiations with the landlord broke down. The company was looking to reduce overhead in an effort to bring the location to profitability. I like the fact that Michael Nahkunst is exploring all options in bringing the business to profitability. Growth will continue as the company plans to open 2 new locations in 2012. I expect this growth to accelerate as the company benefits from its new initiatives.

The $5 area is a great spot to get back in Kona. I'm bullish on this company and expect to see more great things.

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