RAVE Stock: Growing Pains Hit Rave Restaurant Group Inc

Advertisement

Editor’s note: This column is part of our Best Stocks for 2016 contest. Rick Rouse’s pick for the contest is Rave Restaurant Group Inc (NYSE:RAVE).

RAVE Restaurant Group Inc (RAVE) Testing 52-Week LowsIt is rare that I say back the truck up and buy shares of a certain stock because I’m an option trader by nature. However, I do trade and hold certain stocks in my retirement account.

One of my favorite stocks is RAVE, which is a company I have followed closely for four years.

I first started building a position in the stock when shares were just north of $2. As you can see from the five-year chart below, RAVE zoomed to a high north of $16 last year, but the pullback since then has been harsh due to the recent losses the company has posted.

rave_chart_071216

RAVE has been on an aggressive journey — now five years old — to expand the number of its Pie Five Pizza restaurants to 500 units by this year or next. This fast-casual pizza concept has been a hit, as a number of well-known franchisees have signed on to open up to 10-20 stores in major metropolitan areas.

The company also owns a number of Pizza Inn restaurants that have been around for decades, which have recently been updated and remodeled. While RAVE is still opening these types of buffet-style units, their main focus has been on Pie Five Pizza.

RAVE Stock and Pie Five Pizza

The Pie Five Pizza concept reminds me of Chipotle Mexican Grill, Inc. (CMG), as your personalized pizza cooks in under two minutes. Pie Five offers a choice of more than 28 fresh toppings, seven sauces and four crusts for you to invent your own pie.

While it is a great fast-casual pizza experience, I’ve been very disappointed by the losses in recent quarters. I expected growing pains, and I also understand that rapid growth comes at a price, which is why shares are a longer-term hold. However, with losses of $0.12 per share during its third quarter, and a second-quarter loss of $0.45 per share, my prediction of the company turning a profit this year seems bleak.

The good news is that the company will be rolling out a nationwide campaign this September that should give the Pie Five Pizza chains momentum going into 2017. There is very little Wall Street coverage of the stock due to its small market cap of just under $40 million.

Given the recent merger and acquisition activity in the food sector, a major player like McDonald’s Corporation (MCD) or Chipotle could offer a buyout, but that is unlikely. For one, Chipotle has its own pizza-development units called Pizzeria Locale, and the company is expanding the brand.

McDonald’s could copy the concept and offer quick pizza options at its restaurants, but I doubt they would match the quality and taste of those at Pie Five Pizza.

I’ve tried Pive Five’s pizza, and it is fabulous. Now the company needs to keep its losses in check and focus on profitability.

InvestorPlace advisor Rick Rouse is offering a special free report, “The 5 Golden Rules of Options Investing,” that reveals his rules for options trading success that will help you make double- and triple-digit profits in the months ahead no matter what the market has in store. Just click here to read it right now. Whether you’re new to options or have years of experience, the trading advice Rick will share can help you lock in bigger gains, find new winning ideas, wring the risk out of your trades and become a more confident and successful options investor. Click here now to download your FREE copy of The 5 Golden Rules of Options Investing. He is currently long RAVE stock.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/07/rave-restaurant-group-rave-testing-52-week-lows/.

©2024 InvestorPlace Media, LLC