I bought more GTIM this week around $4.50. I think GTIM’s fundamentals are as good or better than at any time since I bought my first shares, as evidenced by GTIM’s recently announced preliminary results.
I also think GTIM’s valuation currently is as attractive as it has been since I’ve owned shares. When I first bought shares around 15 months ago, GTIM was trading at around .7x forward EV/sales (since GTIM is an extremely small, emerging story, I like looking at EV/sales instead of earnings based metrics. I have confidence that earnings will follow sales growth since GTIM’s key metrics like restaurant level contribution, sales per square foot, and same store sales are healthy).
Despite dilution, GTIM is now trading at a similar forward EV/sales ratio as it was 15 months ago. However GTIM now owns Bad Daddy’s, has a wider store base, has continued to prove the concept for an additional 15 months, and has a fuller pipeline of stores in development.
Growth stocks, small cap stocks, and restaurant stocks have all been out of favor of late. Still, I never expected GTIM to fall all the way back to the $4 level (GTIM’s CEO bought some shares recently around $6). If I did, I would have sold some shares around $10 (despite my inclination to hold for very long term gains and defer taxes as much as possible) just so that I could buy back twice as many shares at current levels. While I did not do that, at least I had some cash on hand so that I could add some shares at current levels.
I still think GTIM could be a multiple bagger over the next several years. In that sense it doesn’t matter as much what GTIM does in the short term. However the difference between shares bought at $10 and shares bought at $5 could ultimately result in having either a 5 bagger or a 10 bagger on those shares, which is huge. I am now down to around 10% cash.