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Good Times Restaurants Pick (GTIM)

|Includes: Good Times Restaurants Inc. (GTIM)

Here is a company I'm seriously invested in because I believe in the Bad Daddy's concept, a sort of high-brow low-brow burger joint. Their preparation and attention to detail is that of a nicer restaurant, their offerings skew across the middle and upper middle class consumer with a bend towards the newer age, more variety conscious consumer, while still being a bit excessive with some of their offerings. I think they cut across a pretty financially healthy cross section of America. Yelp and Tripadvisor reviews are predominantly positive, and show an enthusiasm for the concept that could eventually translate into an enthusiastic valuation by investors.

I believe in the story as an investment, since there are only around 20 restaurants, mostly in Denver and Charlotte. Every unit projects to make around a 35% ROIC in the second year, so their cash generation is good, especially for units that generally require about 900k to open.

Management indicates they'd like to grow the unit base around 35-40% each year for the next 3 years, with 9-11 stores coming in FY 2017. Given these numbers I project around 55 stores by end of FY 2019, but let's call it 50 just to be reasonably sure.

At a 2.5 million dollar revenue average per unit that's 125 million in sales, add into this Good Times other brand, Good Times burgers in Colorado, at a run rate of roughly 30 million a year, and you've got a company with annual sales of 155 by end of FY 2019.

At it's present PPS of $3.65, and assuming another 1.7 million shares equity issuance making it 14 million shares, GTIM would be valued at just ~.33x sales, and this ignores all future growth.

It seems likely to me that this will be a tremendous success of an investment at best, especially if you could hold it for 5-10 years, and at it's worst I don't see how you'd lose any money here. Minimum wage changes and other labor rules could pose a problem, the restaurant sector is a bit shaky and competitive at the moment as well, and there's always risks with every investment, but I'm a fan of how straight forward the thesis is here.

Disclosure: I am/we are long GTIM.