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John H. Ford
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For the past 30 years, I have been involved in startups, as a founder, and active investor. My first company was purchased by Johnson & Johnson, which set the foundation for future investments. My level of trading escalated after graduating from college, primarily as a result of my... More
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  • GTX Announced Another State Has Come On Board With Reimbursement

    This information was buried in a press release, but it's very significant. For GTX to obtain reimbursement for 2 states within such a short period of time is unheard of. I didn't expect the first state to come on board until the end of this year at the earliest, and now we could have more than 2 states by year-end, if they keep signing on at this rate.

    Jun 09 10:42 AM | Link | Comment!
  • GTX's Lead Product Just Validated By Medi-Cal

    GTX just announced that its SmartSole's have been approved for 100% reimbursement with Medi-Cal. This means that 11 million Medi-Cal subscribers now have access to free SmartSoles and free monthly subscriptions.

    This is important for 3 reasons:

    Number 1: GTX now has product validation from a major government agency.

    Number 2: GTX can immediately begin selling products to this large subscriber group.

    Number 3: it will now be much easier for GTX to obtain reimbursement from other states, because once California is on board, the rest should follow.

    This is a home run for the company, and just one more example of management's ability to execute.

    Disclaimer and disclosure: It is probable that the author and his associates have a position in the subject securities consistent with the opinion expressed in this article and they reserve the right to buy and/or sell the securities mentioned in this article, at any time without further notice. For complete disclosure and disclaimer information please clickhere.

    Tags: GTXO
    Apr 08 12:05 PM | Link | 3 Comments
  • Forget Shake Shack, Chanticleer Could Provide More Than A 2X Return

    Summary

    · The current rights offering should be a game changer for Chanticleer because it could allow the company to turn profitable next quarter.

    · The company is in hypergrowth mode with year-over-year quarterly revenue growth exceeding 400%.

    · Chanticleer is trading at a .5 price to sales ratio, well below the 3.8. peer average.

    I have been buying shares of Chanticleer Holdings (NASDAQ:HOTR) based on the company's year-over-year 473% quarterly revenue growth, potential near-term profitability, and ridiculous level of undervaluation. The results of the just completed rights offering will be announced early next week and could provide a powerful catalyst for shareholders.

    This company is completely under Wall Street's radar, and should provide more than a 100% return.

    Acquisition strategy could turn Chanticleer profitable next quarter

    Chanticleer has been acquiring hidden gems in the restaurant sector, and this strategy could generate profitability next quarter. Chanticleer is following a similar growth strategy that Opko (NYSE:OPK) successfully implemented; growth by acquisition. I first covered Opko when it was trading at $4, and it is currently trading at over $14, primarily as a result of Dr. Philip Frost well-managed acquisition strategy.

    Chanticleer's business

    Chanticleer owns and operates multiple restaurant brands including Hooters, American Burger and Just Fresh. The Company owns all or part of the Hooters franchise rights to develop and operate Hooters restaurants in South Africa, Australia, Europe, and the Pacific Northwest. But it's the better burger segment that really has me interested in Chanticleer.

    Chanticleer is conducting a game changing rights offering

    With the goal of preserving the company's $18 million in NOLs, Chanticleer offered shareholders the right to buy shares at $2. This offering is intended to raise the cash needed to make accretive acquisitions. The currently planned acquisitions will significantly grow Chanticleer's top line revenue, and could take the company to profitability, almost immediately.

    The results of the rights offering will be announced early next week, possibly as early as Monday, and positive results should be a strong catalyst for the share price.

    Chanticleer is severely undervalued when compared to peers

    One of the best ways to value companies is to use a price to sales ratio. McDonald's, the gold standard in burger territory has a price to sales ratio of 3.3. Shake Shack's price to sales ratio is 4.97 and Zoe's is 3.9. Chipotle has a price to sales ratio of 4.9. On the other end of the spectrum, we have Wendy's which has a price to sales ratio of 1.9. The average price to sales ratio for all these companies is 3.8.

    It should be noted that Shake Shack and Zoe's are reporting losses. Zoe's just reported a net loss of $10 million for 2014, compared to a net loss of $3.7 million the previous year. Even though these 2 competitors are losing money, they are given very healthy valuations based on substantial projected future profits.

    What's fair valuation for Chanticleer today?

    Chanticleer is currently valued at $16 million. If we include the value of Chanticleer's 3% controlling stake in Hooters of America, which should be worth at least $4 million in cash when the sale is concluded later this year, that gives Chanticleer an effective valuation of $12 million. But in order to keep all estimates conservative, we will use the $16 million number.

    That's for a company that should generate at least $45 million this year if there are no acquisitions, and with acquisitions and new restaurant openings Chanticleer could generate at least $68 million this year. That's an insane level of mispricing with a forward price to sales ratio of .2. Remember, the average price to sales ratio for the top companies in this sector is 3.8. It's almost unheard of to see a price to sales ratio as low as Chanticleer's but it provides a tremendous investment opportunity.

    I estimate Chanticleer's 2014 revenue to be at least $25 million. If we use a discounted price to sales ratio of 2.8, which is 25% below the 3.8% peer average, that would give Chanticleer a fair valuation of $70 million. Keep in mind $25 million for 2014 is conservative, because most analysts are projecting greater than $30 million for the year.

    With a fair valuation of $70 million, and 8 million shares outstanding, Chanticleer should be trading for $8.75 today if it were valued 25% lower than its peers. That's over 3 times today's shareprice. Talk about mispricing! Even if Chanticleer's shareprice were to double, that would still be an extreme level of undervaluation when compared to peers.

    What would Chanticleer be worth by year-end with no acquisitions?

    If Chanticleer makes no acquisitions this year, it should generate at least $45 million for 2015. With a price to sales ratio of 2.8, that would give Chanticleer a valuation of $126 million.

    To keep the estimates conservative, let's assume that the share count is increased from the current 8 million to 10 million. With a fair valuation of $126 million, Chanticleer's share price would be $12.60. But that's a worst-case scenario, because in reality, Chanticleer will most likely make accretive acquisitions which will bring the revenue significantly higher.

    What would Chanticleer be worth by year-end with acquisitions?

    If the rights offering generates $8 million, that would increase the share count to 12 million shares and would allow the company to complete all current acquisitions including the opening of about 3 new Hooters locations. I estimate with the current business and revenue from planned acquisitions and new restaurant openings, Chanticleer should generate at least $68 million this year, and that's not including the sales of Hooters of America which should bring in an additional $4 million to $5 million.

    Just to be clear, when Chanticleer sells its 3% controlling stake in Hooters of America, it will still own all its Hooters restaurants and franchises, the 3% controlling stake was a separate investment in the parent company.

    With $68 million in recurring revenue, and a 2.8 price to sales ratio, Chanticleer would be fairly valued at $190 million. With 12 million shares outstanding, that would give Chanticleer a shareprice of $15.86. When we include the Hooters of America sale, the share price would be even higher.

    Which is the most accurate price target, $12 or $15?

    By early next week, probably Monday, we will know the results of the rights offering, and just how much cash Chanticleer raised. If very little cash was raised, the $12 price target will be more accurate because there may be no immediate acquisitions. If $8 million or more was raised, all acquisitions and restaurant openings should be priced into the model, and a $15 price target is realistic. If only $4 million is raised, the price target will be $13 to $14, because the acquisitions will be smaller in scale.

    Who cares about price targets, Chanticleer is worth $8.75 today

    I bought shares in the low $2 range, so even if Chanticleer only reaches today's fair valuation, which is $8.75, that's more than a 3X return on my investment. If the share price goes to $12 or $15, that will be great, but as far as I'm concerned, that simply an added bonus.

    Chanticleer's impressive revenue growth

    Take a look at these revenue numbers, and you will see why I have invested in Chanticleer:

    · Q3 2013: $1.6 million

    · Q4 2013: $3.3 million

    · Q1 2014: $5.8 million

    · Q2 2014: $6.9 million

    · Q3 2014: $9.1 million

    3rd quarter 2014 restaurant revenue was $9.1mn, an increase of 473.5% year-over-year. Restaurant EBITDA stood at $0.9mn, an increase of 1040% year-over-year. These are numbers generally seen by companies trading at a premium, not a discount.

    If all acquisitions and new restaurant openings are completed, a high level of growth will continue and Wall Street should begin to take notice.

    Acquisitions could make Chanticleer profitable this year

    The biggest advantage the planned acquisitions will give investors is that Chanticleer could become profitable as a result of the acquisitions. In fact Chanticleer could be profitable as early as Q2 of this year because all revenue is accretive, and applicable immediately following the transaction.

    One important element that tips the scale to profitability is the increase in the number of high-margin better burger restaurants that Chanticleer will own following the acquisitions.

    When you include the sale of Hooters of America, of which Chanticleer controls 3%, that should add another $4 million-$5 million to Chanticleer's bottom line, which would push the company into monster profitability in Q2. That's assuming the Hooters of America sale closes by Q2.

    Rave Restaurant Group provides the best comp to Chanticleer

    Rave Restaurant Group (NASDAQ:RAVE) provides an excellent comp, with $44 million in annual revenue, no earnings, and a valuation of $140 million. Rave is growing much slower than Chanticleer, with Q4 2013 revenues of $10 million which grew to $11 million in Q4 of 2014. That's only a 10% % year-over-year revenue increase. Compare that to Chanticleer's 473% year-over-year growth.

    Rave is being given a price to sales ratio of 3.2. With Chanticleer's superior revenue growth, one could easily make a case that Chanticleer deserves a much higher price to sales ratio than Rave.

    Why is Chanticleer so undervalued?

    The primary reason is that Wall Street hasn't caught on to Chanticleer's phenomenal growth rate, and ridiculous level of undervaluation. Shake Shack has gotten all the publicity, while Chanticleer has remained under the radar. That will change at some point, probably sooner rather than later as a result of the current acquisitions and the buzz in the better burger space. The Shake Shack IPO will ultimately be helpful in directing attention towards Chanticleer.

    MarketWatch article provides validation of Chanticleer's strength

    There was also a good MarketWatch article released yesterday that provides a very compelling chart presented at the beginning of the article. If you're considering investing in Chanticleer, I highly recommend studying the chart because it clarifies how much Chanticleer stands out when compared to peers.

    Conclusion

    At the very least I expect the shareprice to double, and longer-term investors could realize 6X to 8X returns. If Q2 is profitable, and Chanticleer receives $5 million from the Hooters of America sale, the company could report blockbuster numbers which should generate attention from Wall Street and significant share price appreciation.

    The rights offering is a huge catalyst for Chanticleer, because if substantial capital is raised, not only does that validate demand for the company's stock, but more importantly it could push Chanticleer into profitability. Equally important, the company would be able to generate levels of revenue that will force Wall Street to pay attention.

    Chanticleer is an ideal asymmetrical trade, tremendous upside potential, and with a $16 million valuation, downside is limited.

    Disclaimer and disclosure: It is probable that the author and his associates have a position in the subject securities consistent with the opinion expressed in this article and they reserve the right to buy and/or sell the securities mentioned in this article, at any time without further notice. For complete disclosure and disclaimer information please click here.

    Mar 13 12:03 PM | Link | 5 Comments
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