Editor’s Note: The author’s technical analysis was done on Dec. 21, which is why the prices mentioned may differ slightly from current share prices. Also, this column is part of our Best Stocks for 2016 contest. Rick Rouse’s pick for the contest is Rave Restaurant Group Inc (RAVE).
Shares of Rave Restaurant Group (RAVE) have been volatile throughout 2015, with plenty of momentum to both the upside and downside. With a market-cap of just over $60 million, seeing these types of moves in micro-cap stocks is not uncommon as companies fight for market share.
RAVE is competing for market share in the “fast casual” space with its concept of high-quality food served quick and fresh. Most consumers wouldn’t think pizza fits into this market, but the company’s state-of-the-art ovens are changing the industry.
Pie Five Pizza has been introducing a revolutionary way for its customers to enjoy pizza over the last three years, which began with the launch of its first location in Texas. Besides offering customers a convenient way to pick their own crust, sauce and ingredients, Pie Five is able to hand customers their personal pie in under two minutes from when they give the server the thumbs up on their creation.
I was excited for my first visit to Pie Five over a year ago after one opened in my area. I got to sample the food and talk with the general manager at one of the stores. I didn’t grill him on the store’s numbers, as I was more interesting in learning more about the company’s story and culture.
The store I visited at lunchtime was bustling with business and, back then, I said that it reminded me of Chipotle Mexican Grill (CMG). Of course, CMG’s stock has been taking a hit lately due to the E. coli concerns, and this type of news is always a risk to restaurant stocks.
Hygiene should always be the highest priority for any restaurant, and Pie Five prides itself on staying clean. The company’s sleek modern design and cleanliness made my stay that much more enjoyable as I took advantage of its free Wi-Fi to catch up on some stock quotes.
Shares came into the year at $7.10 and traded to a 52-week high of $16.20 by late March. The company has reported quarterly losses throughout the year, which have contributed to the nasty pullback. I warned of this possibility throughout the year, as I have mentioned that the company wouldn’t be profitable until at least 2016.
The company recently reported a loss of $0.05 a share on revenue of $14.5 million. Current-quarter estimates are for a loss of $0.04 a share on revenue of $15.4 million.
RAVE stock is currently trying to form a bottom at $5.50-$5.40, but there is risk to $5 on a close below the latter. The major moving averages are still in a downtrend, but the 200-day moving average looks to be leveling out. Resistance is at $6, and there should be room to run to $7 if $6 is cleared.
While the technical and fundamental outlook remain weak, the longer-term growth story for the company still represents a compelling opportunity. The company is on track to open 500 Pie Five locations over the next few years, and we are still in the early innings of this ballgame. Although shares are down 17% so far in 2015, I consider this a gift from the market, as shares could easily return to double-digits in 2016.
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