With several business segments poised to grow and plans to repurchase $175 million worth of shares in 2014, this stock, which might not seem like a buy at first glance, is certainly one to add to your portfolio.
Squeezing out profits
Jamba, Inc. (NASDAQ:JMBA) operates a chain of beverage, juice, fruit smoothies, and snacks retailers, mainly in the U.S. With a market cap of $225 million, this small company has caught my attention recently. After reporting a weak second quarter, its stock price started to decline. Currently, Jamba’s stock trades at about $13 per share, 17% cheaper than just before the earnings call. Valued at only 0.9 times its sales but at 416 times its earnings, is this stock a buy? I´d say it is.
Although many investors are concerned about the results, last quarter’s earnings were quite in line with the industry’s general performance. However, the market overreacted a bit, thus opening an attractive entry point for long-term shareholders.
You might wonder, why should you go long in a company that seems to be declining. Well, the answer is quite predictable by now: Jamba, Inc. (NASDAQ:JMBA) is transitioning into an asset-light model. Although revenue has been suffering over the last few quarters, the focus on franchising and other royalty-based products such as consumer packaged goods should drive growth in the longer term.
Based on conservative calculations, franchising and CPG revenue could contribute around 60% to 70% to the bottom line, widening margins considerably. I concur with Nortia Research analysts, who “..believe that Jamba, Inc. (NASDAQ:JMBA)’s proposition to potential franchisees will be strengthened by the fact that the company’s financials are heading in the right direction.”
Particularly, two initiatives seem encouraging:
The new limited-service format called Smoothie Stations, mini Jamba Juice units that can be dropped into a 100 square-foot to 200 square-foot space, [which] should also help increase the pace at which the company can grow new locations and increase its franchising and CPG revenue stream. ; and
The JambaGo outlet initiative, which works with self-service machines and points to increase the presence of the brand in high-traffic locations like stadiums and colleges.
Bottom line
Despite a weak general performance in the restaurant industry last quarter, the companies described above are still worth a look. Although not usually among the top picks in the segment, these companies are worthy additions to your long-term portfolios as they transition toward asset-light models.
The article Asset-Light Models: The Future for These Restaurant Chains originally appeared on Fool.com and is written by patricio kehoe.
patricio kehoe has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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