Big Apple Bagels: A Better Bagel Play Than Einstein Noah Restaurant Group

Last week, Einstein Noah Restaurant Group (BAGL) listed on the NASDAQ and completed a public offering at $18/share. I have always had a certain fondness for Einstein's. Not for the bagels -- they are simply awful -- but because during the first incarnation (when it traded under the symbol ENBX) I shorted it into the ground. Fellow blogger Bill Simpson (via Seeking Alpha) thinks that BAGL shares are fully valued at current prices.

He writes:

Coming out of bankruptcy reorganization, management the past 3 years has done a nice job improving margins and same store sales comparables. Keep in mind much of this same store sales growth is attributable to sluggish performance in 2003/2004 as well as management simply closing non-performing stores. BAGL has extensive tax carry-forwards, meaning the bottom line here is greatly benefiting from not being taxed. Plugging in taxes, BAGL looks awfully pricey in range, especially keeping in mind past bankruptcy (for Einstein and Noah) and the not insignificant debt being carried on the books. Revenues have been stagnant, competition is fierce. BAGL to me looks to be a turn-around story at least fully valued in range.

Big Apple Bagels (BABB.OB) is a much better play on the bagel biz. Big Apple operates, franchises, and licenses Big Apple Bagels, My Favorite Muffin and Brewster's Coffee. Most of the revenues come from franchise royalties. The company has been consistently profitable for several quarters, and pays a dividend of $.02 per quarter. That gives it a dividend yield of 7.80%. While BABB is not growing, it has managed to shrink debt from $651,000 to $381,000 over the past year, even while paying out the large dividends.

Technically, BABB.OB shares look solid. After consolidating for around a year between $.90 and $.98, they broke out in early June after the latest quarterly dividend was announced. While the shares are already ex-dividend, they have also retraced a lot of the breakout. I don't own any shares currently, but BABB.OB is on my short list and I'd like to take a position around $1.

DISCLOSURE: I have no position in BAGL or BABB.OB. Not a recommendation to buy or sell any security. For informational and educational purposes only.