Muscle Maker Inc. (GRIL:NASDAQ) is a currently undervalued company "experiencing record growth," reported Goldman Small Cap Research founder and analyst Rob Goldman in a May 5 research note.
Potential 233% gain
Goldman's research firm has a $4.50 per share six- to nine-month price target on Muscle Maker, which is equivalent to 15 times $0.30, the amount Goldman forecasts as 2023 adjusted earnings per share (EPS) for the diversified, food-focused company.
Muscle Maker is currently trading significantly below Goldman's target price, at about $1.35 per share. The difference between the two prices implies a potential 233% gain for investors.
In his report, the analyst highlighted additional key points about Texas-headquartered Muscle Maker as an investment.
Subsidiary is game changer
Since Muscle Maker formed Sadot in November 2022, this U.S.-based global agribusiness subsidiary has generated between $50 million ($50M) and $93M each month. Revenue in the two months it existed in 2022 was $150.6M (Goldman pointed out this figure is correct, not a typo.) This amount compares to the $11.1M that Muscle Maker's restaurant and franchising segment yielded in all of 2022.
Consequently, noted Goldman, thanks to Sadot, Muscle Maker is "recording substantial revenue and net income results, on an adjusted basis."
Creative pay for performance
Muscle Maker is also benefitting from the service agreement it has with the firm, AGGIA, to run Sadot. It is, according to Goldman, a "creative pay for performance plan that in our view is a major win for Muscle Maker and also a positive for AGGIA."
In part, for instance, the agreement calls for AGGIA to earn, by generating net income for Sadot, Muscle Maker common stock and the right to nominate new board members.
Other revenue generators
Muscle Maker has other business segments, including its initial focus, grill restaurants offering and selling fast casual food; along with SuperFit Foods, offering direct-to-consumer premade meal prep; and Pokemoto, a Hawaiian poke restaurant brand.
Going forward, Muscle Maker management intends to concentrate on franchising Pokemoto with initial franchise fees of up to $25,000 per location and 6% of the gross revenue. It also aims to develop a series of hybrid Muscle Maker-Pokemoto spots.
"With a focus on franchising and strength in a key category, Muscle Maker could emerge as the leading U.S. brand for the popular Hawaiian poke offering," Goldman purported.
Profitability forecasted for 2024
Looking forward, Goldman Small-Cap Research expects Muscle Maker will first generate a profit in 2024, of an estimated $14.6M. Goldman forecasts full-year 2024 (FY24) revenue to be $1.05 billion with $13.9M of it coming from the restaurant-related business.
This year, Goldman's firm expects Muscle Maker to generate $913M in revenue, representing a 463% year-over-year (YOY) gain, the analyst highlighted. Of this total, the restaurant business will contribute an estimated $12.2M, reflecting a 10% year-over-year increase. Ultimately, though, Goldman Small Cap Research expects Muscle Maker to post a loss of about $6.1M for FY23.
Goldman explained that Muscle Maker has decided to continue its legacy fast casual restaurants for two years. However, if losses continue and growth is minimal to none, the company may consider spinning off or divesting this business segment. Muscle Maker would generate "many millions" from such an event, added Goldman, and EPS would potentially jump to $0.38 from $0.28.
"Upside to future forecasts and our target exist via the potential sale of the fast casual segment, among other events," noted Goldman.
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