After Chipotle's Miss, I'm Re-Entering The Restaurant Sector With This Small Cap

Aug. 6.12 | About: Bravo Brio (BBRG)

Insider buying is a strong indicator of future stock performance. After selling my entire position in Chipotle Mexican Grill (CMG) prior to reporting earnings (and averting a bloodbath), today I re-entered the restaurant space and bought into Bravo Brio Restaurant Group (BBRG) as there has been some insider buying. The stock has been rebounding following the recent selloff after it lowered its guidance and projections for the remainder of 2012. BBRG is a small cap stock that owns and operates two distinct Italian restaurant brands, BRAVO! Cucina Italiana and BRIO Tuscan Grille. Bravo Brio shares are currently trading around $16.70 with a P/E ratio of 19.9 and P/S ratio of 0.9.

BBRG announced on July 31st that it now expects 2012 to revenues range from $412 million to $416 million and total annual comparable restaurant sales range of 0.0% to 1.0%. Analysts on an average were expecting BBRG to report revenue of $417 million for fiscal 2012. This news sent the stock down from about 18 dollars a share to around 15 dollars a share in one trading day, or about 16%.

However, there has been some insider buying, which tells me BBRG's future looks bright. The CEO Saed Mohseni bought 6,400 shares on August 3rd at an average price of $16.08 at a cash cost of $102,912. This was the CEO's first purchase of company shares in 2012. Further, on the same day, CFO, Treasurer and Secretary of BBRG, James O'Connor, bought 1,000 shares at $15.90.

BBRG is growing at a fairly high rate considering their annual earnings history, as they reported annual earnings per share of $3.96 in 2011. But had a net loss of 54 cents per share in 2010, and a net loss of $1.13 in 2009. The company has seen steady growth in top line revenues, with the balance sheet showing they are sitting on about $10 million in cash, but owes $30 million in long-term debt and an additional $81 million in other long-term liabilities. However, Next quarter's average estimate for revenue is $100.1 million. On the bottom line, the average earnings per share estimate is $0.16. Next year's average estimate for revenue is $417.1 million. The average 2013 estimate is $0.94.

Bottom line, given the growth potential and the recent insider buying, I started a small position in the stock and recommend looking into the company if you are looking for a position in the restaurant space.

Disclosure: I am long BBRG. Initiated position today (8/6/12)