Walking down the street in Midtown Manhattan a few days ago, I passed a food truck selling cupcakes. Food trucks are a craze and so are cupcakes. I bought a bite-sized red velvet with cream cheese icing, not a particularly adventurous choice but the selection was limited. Imagine my surprise when I passed by a Crumbs Bake Shop with its gigantic assortment of cupcakes a few blocks away.
I didn't think much of it until one of my friends who trades SPACs (Special Purpose Acquisition Companies) told me that the company is publicly traded under the symbol CRMB. The name of the company is 57th Street General Acquisition Corp. The SPAC acquired the operating company Crumbs Holdings in May. The stock was trading at $13.00 as of Thursday's close. As with all SPACs there are warrants outstanding too. I think the warrants CRMBW provide an excellent low cost to method of playing this growth opportunity. The warrants are currently trading at around $2. The warrants have a significantly better risk-reward ratio than the common stock.
As a cautionary note, both the common stock and the warrants are thinly traded, so investors looking to buy should use limit orders and be patient. A catalyst that should increase trading volume is the announced listing on the NASDAQ effective June 30th.
I think that this company has tremendous growth prospects. I think the stock could be another craze that takes off. There are 36 locations open with five more scheduled to open soon. Witness the returns of other companies that started a new concept and expanded nationally, like CAKE, BLWD, CMG, KKD and LULU. The model of starting small and growing through expansion has tremendous upside for early stage shareholders. The SPAC market has been very quiet lately so the stock is not getting much attention.
Since CRMB recently acquired Crumbs, the available financial data only relates to the formation and IPO, not the results of the operating company. The next release should include operating company results. I would look for the numbers to be good. The stores that I've visited have been busy and the offerings look delicious. If I am correct, these warrants should rise. For less than the price of a cupcake, the warrants provide upside participation with limited downside.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.