Editor’s Note: The author’s technical analysis was done on Mar. 24, 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).
Rave Restaurant Group (RAVE) announced a surprise loss for the recently-ended quarter that was much larger than expected. RAVE reported a loss of $0.45 a share versus estimates for a $0.04 loss, while revenue came in a tad light at $15.3 million compared to the forecast of $15.4 million.
The stock fell on the news but has since regained the $5 level. Support is now at $5-$4.75, while resistance is at $5.25-$5.50. The major moving averages are still in a downtrend and are showing no signs of leveling out anytime soon. However, this gives investors a tremendous buying opportunity to get a growth stock at incredibly low levels. Unfortunately, shares will likely drift lower until the technical signals improve.
Pie Five average weekly sales showed a slight decrease in its latest report in February, but this was sort of a given, as last year’s new stores had unusually high volume during their openings. However, it will be something to keep an eye on going forward.
The company continues to sign multi-unit deals, with the latest investor being a former McDonald’s (MCD) franchisee. Peter Ballantine has signed a deal to add up to 34 new Pie Five locations in Ohio and Pennsylvania.
Also, a total of 11 new franchised restaurants and three new company-owned restaurants opened in the second quarter of fiscal 2016. This brings Rave’s total restaurant count to 82 Pie Five restaurants. It is still on track to open up to 500 franchise restaurants, and the company expects to hit the 100 mark before the end of the year.
Rave also owns Pizza Inn, its original chain of buffet-style pizza stores, but this division is still struggling. Domestic comparable store sales decreased 1.7% from the same period in the prior year, but help is on the way. Bob Bafundo is now in charge of “refreshing” the brand, and he brings over 35 years of experience in the restaurant industry to the table.
Rave only owns one Pizza Inn, but it collects royalties from the brand’s 234 domestic and international stores. New stores are in the process of opening, along with some remodeling projects. The brand plans to revitalize itself by expanding off-premise sales like carryout, delivery and catering.
Part of the losses for the recently-ended quarter can be blamed on Pizza Inn’s burden and other charges, but the future still looks bright if a turnaround in these stores takes shape. Four new Pizza Inn stores are planned to open over the next quarter or two in markets like Oklahoma, Arkansas, Georgia and Mississippi as well.
Rave is still a solid company for speculative accounts, but it may be another three to six months before shares regain momentum. The company’s next quarterly report should provide better details as to whether the company is managing its growth successfully or if it needs to slow down and reevaluate things.
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