GRIL - Muscle Maker: Successful Diversification And Partnership Lead To 400% Price Surge In 3 Months

Summary

• Muscle Maker partnered with AGGIA LLC in November 2022 and has generated more than $200M in revenue within three months.
• Its Hawaiian food chain, Pokemoto, has been opening new outlets every week since the start of 2023.
• The company hasn’t been profitable since its inception in 2014, but there is a high probability of a turnaround in 2023.
• My current opinion on GRIL stock is a Buy.

Thesis

Muscle Maker, Inc. (GRIL) was listed at the worst possible time to get listed for a company in the food business. And yes, you guessed it correctly, in 2020. It got listed in February 2020 at a price of $3.7 per share and just, within 45 days, lost more than half its value. Since then, the journey has been downward, with the stock price reaching as low as $0.30 in November 2022. Then came the turning point, and the stock has increased fivefold and is currently trading at $1.51.

GRIL has taken significant strides to expand its business by raising funds through a listing. They have demonstrated an unwavering commitment to achieving this goal by acquiring two major companies, namely Pokemoto and Superfit Foods, in 2021. As a result, their revenue in 2021 doubled compared to the previous year, and they already surpassed their 2021 revenue in 2022, with the final quarter's outcome still pending. This outcome is set to significantly benefit investors, as indicated in the flurry of press releases from Sadot LLC, a wholly owned subsidiary of Muscle Maker, following its vertical integration initiative with AGGIA LLC FZ (an international consulting firm comprising experienced executives with extensive backgrounds in the food and agricultural supply chain industries). According to GRIL's February 6 press release , Sadot generated $209 million in revenue during its first three months of operation and achieved a net profit of over $3.3 million. Muscle Maker has kept investors up to date on Sadot's revenue, causing a frenzy in the market.

About the company

Muscle Maker specializes in preparing healthy, fresh, protein-based meals in their fast-casual restaurants. It acquired Superfit Foods, a meal prep service that delivers fully prepared meals to 34 company-owned coolers in gyms and wellness centers in Florida. Superfit operates 100% online and with an increase in subscribers, it will have great potential to generate recurring revenue with high margins. It also acquired Pokemoto, a Hawaiian poke restaurant that offers chef-driven contemporary flavors with fresh and healthy ingredients, appealing to foodies, health enthusiasts, and sushi lovers. To expand its business, GRIL formed Sadot LLC, with the goal of creating a comprehensive, global food company that includes sustainable farming, agricultural commodity shipping and trading, distribution, production, restaurant, franchise, and meal prep companies.

A steep increase in franchisees, menu items, and revenue

Pokemoto, a rapidly growing restaurant franchise, has b een approved to sell franchises in all 48 continental states in the US, with New York being the final state to grant approval. Since the beginning of 2023, new Pokemoto outlets have been opening each week, and the company has signed bulk franchise agreements, bringing its total to 60. On January 19, Pokemoto inked a deal with Foxwoods Resort Casino , North America's largest resort casino, to launch 19 locations in Connecticut. In addition, Pokemoto has teamed up with Saladcraft, a build-your-own salad bowl concept with over 60 unique, high-quality ingredients and hand-crafted dressings, to enable franchisees to offer Saladcraft as a ghost kitchen within existing Pokemoto locations via third-party delivery platforms.

Muscle Maker has experienced operating losses since 2015 due to low revenue and high selling and general administrative expenses. From 2014 to 2020, the company's revenue followed a symmetrical pattern, increasing to $7.2 million in 2017 from $2.5 million in 2014, then dropping to $4.5 million in 2020. However, since acquiring new businesses, Muscle Maker's revenue has skyrocketed, with more growth anticipated through new locations and customers across all subsidiaries.

Favorable diversification and financial ratios

A crucial component of its diversification plan is the alliance with AGGIA, and the partnership terms are intricate and advantageous to the company. The agreement lays out various provisions related to the allotment of Sadot LLC shares to AGGIA and the appointment of AGGIA's executives as directors in Sadot. These terms hinge solely on the performance of Sadot, which is essentially run by AGGIA. Thus, GRIL has no downside risk, and fortunately, the collaboration has turned out to be a pleasant surprise, as Sadot has already generated profits within three months of its inception.

With growth at the forefront, having a debt-to-equity ratio of only 1:5 and a quick ratio of 5.16 is no mean feat. The industry median for the debt-to-equity ratio is 157%, and that of the quick ratio is only 0.64. The main reason for this is that most of the acquisitions made by the company are in exchange for shares, showing the confidence of the acquirees.

Negative net income and operating cash flows

The only risk with the company involves its incapability of generating profits after being in business for so many years. Not only that, but the company has also never seen positive operating cash flow since incorporation. Though the latest trends and agreements might change those numbers, it is yet to prove its efficient management and deployment of capital for the long-term creation of value for its investors.

The Bottom Line

Stock Tracking Opinion

Based on the growth of the company so far in 2022 and its push for bettering investor relations, this stock might come under the radar of analysts and get some coverage in the coming year if not quarter. Increasing recurring revenues and decreasing expenses, especially fixed costs, seems to only bring profits for the investors. It may not turn profitable in FY 2022, but it will likely attract many investors after releasing its Q4 earnings on the 17 ^th of next month. I expect it to be a pivotal moment in establishing the company in the saturated food industry. Though it has given substantial returns in the last three months, I expect the stock to grow further and hence I will surely include it in my portfolio.

Investment Opinion

Despite new franchisees of Pokemoto opening every week, as of today, it only has a presence in 16 states across the US, leaving great upside potential for the company. This is followed by vast shipments of food oils, white wheat, and soybean meal globally with each shipment averaging more than $2M in revenue, my current opinion on GRIL stock is a Buy.

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