GRIL - The Compelling Case For Muscle Maker Inc.

2023-03-27 13:41:04 ET

Summary

• GRIL is a restaurant business and so much more.
• GRIL has expanded to become a commodity business with strategic acquisitions and partnerships.
• Impressive revenues from the Sadot division.
• The stock had tripled: If revenues are sustainable, the upward trajectory could continue.
• But there are risks.

Identifying value in the stock market has been challenging. In 2022, the S&P 500 declined 19.44%, and the Nasdaq fell 33.1%. While the two leading indices recovered in early 2023, they remain under pressure as rising interest rates have weighed on stocks. Investors must be highly selective in the current environment as the U.S. Fed has pledged to address inflation with further rate hikes, which could put even more pressure on stocks. Higher rates cause capital to flow from stocks to bonds. With the latest CPI, PCE, and PPI data signaling the highest inflation in decades, the central bank's hawkish monetary policy approach has continued.

Food and energy companies have fared well in the current environment, as the war in Ukraine, post-pandemic supply chain issues, and other factors have caused prices to rise. Muscle Maker, Inc. ( GRIL ) is a food company and so much more.

GRIL: A restaurant business

Muscle Maker Inc. trades on the technology-heavy Nasdaq. The small-cap stock was at the $1.03 level on March 24, translating to a $29.612 million market cap. The company's description states:

GRIL's website highlights the company's " healthier for you " brands. Pokemoto is a Hawaiian poke bowl concept. SuperFit Foods offers freshly prepared subscription-based meals with over 150 plans to suit individual dietary needs and restrictions. GRIL is expanding its reach across the U.S. via a franchise program.

Meanwhile, the company has other interests besides its consumer food products and franchise program.

GRIL is also a commodity business

On November 18, 2022, GRIL filed Form 8-K with the Securities and Exchange Commission and issued a press release announcing a new wholly-owned subsidiary, Sadot LLC. Moreover, the filing included a material agreement between GRIL, Sadot, and AGGIA .

Sadot's goal is to create a comprehensive, global food company. GRIL and Sadot's agreement creates synergy. The products will expand the reach to GRIL's customers via Sadot's position as an international agricultural commodity shipping and trading company in soybean meal, wheat, and corn markets.

AGGIA performs the day-to-day operations for Sadot via the agreement. AGGIA's expertise in sustainable farming, agricultural commodity shipping, trading, and distribution created immediate results. The November 14, 2022 public services agreement between GRIL, Sadot, and AGGIA spells out the relationship, a pay-for-performance deal with AGGIA gaining board seats and shares based on an agreed program of financial contributions.

In a December 12, 2022, press release, GRIL announced Sadot LLC generated $54.19 million in revenue in November 2022 , with 26 agricultural commodity shipping transactions spanning seven countries.

GRIL's M&A activity expanded the company's reach far beyond the food and franchise arenas, creating a diversified agricultural commodity business from production to consumption, including logistical expertise and interests.

Impressive revenues

On March 1, 2023, GRIL had more exciting news for investors as it reported significant revenues. Michael Roper, GRIL's CEO, said, " We are extremely pleased to have achieved shareholder approval for the Services Agreement between Sadot and AGGIA and related items. Today's results mark the beginning of a new era in our planned growth cycle. The AGGIA team brings deep expertise to our new business segment, including sustainable farming, agricultural commodity shipping and trading and distribution. Sadot's performance to date of over $200 Million in revenue in the first three months of operation is proof positive of the benefits of executing the strategic relationship and addition to our businesses."

At $1.03 per share on March 24, with a market cap of $29.612 million, Sadot's revenue contribution could mean GRIL, the market is significantly undervaluing the stock at the current market cap and share price.

The stock had tripled: The latest earnings caused selling

GRIL shares had been trending higher since mid-November 2022.

The chart highlights GRIL's rise from 30 cents on November 14, 2022, to $1.525 on March 3, a 408% rise in under five months. GRIL shares had made higher lows and higher highs over the period in a technical break to the upside.

The trajectory of the rise has Barchart, a technical site covering markets across all asset classes, rating the stock a technical " Buy " as of March 24.

While Barchart's buy rating is purely technical, the fundamentals indicate a higher share price. The agreements between Sadot, the wholly owned subsidiary, the AGGIA partnership, and the recent revenue reports are compelling reasons to put GRIL shares on your investment radar. A continuation of the current revenue levels supports a much higher stock price.

In a February 27, 2023 Seeking Alpha article, Arpit Sathavara wrote, " My current opinion on GRIL stock is a Buy ." Meanwhile, the latest earnings numbers caused GRIL to correct. The stock dropped 32.5% from the March 3 highs as of March 24. On March 21, GRIL announced its 2022 full-year and Q4 results . The highlights were $161.7 million in total revenue, the formation of the new wholly-owned subsidiary, Sadot LLC, in October 2022, and the material agreement with AGGIA. While revenues are consolidated, Sadot generated approximately $150.585 million in revenue over the six weeks from mid-November 2022 through December 30, 2022. Net income was around $4.55 million, with a 3% profit margin. GRIL's total 2022 revenue of $161.7 million was substantially higher than 2021 total revenue of $10.35 million. The company's net loss per share narrowed from 50 cents in 2021 to 28 cents in 2022.

While the profit margin is low at 3%, the substantial revenue achieved by expanding the company's mission could result in profitable results in 2023.

Risk always is a function of the potential for dramatic rewards

At $1.03 per share, GRIL remains a micro-cap stock. The company's shares trade on Nasdaq, providing some comfort compared to micro-caps trading on the over-the-counter market. However, the risk of losses is always a function of potential gains.

The current stock market landscape is a minefield of risk, and companies with growing revenues and profits offer the best odds for success today. Keep an eye on GRIL as the company appears to be on a path for diversification, revenue growth, increasing chances of profits, and continuing the bullish direction of its shares. The recent dip could be a golden buying opportunity.

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