Muscle Maker Inc. (GRIL:NASDAQ) began evolving from a consumer-focused, U.S. restaurant business into a global, food-focused organization in late 2022. It operates in a bifurcated model with two distinct business units: Sadot LLC and MMI Restaurant Group.
The firm's newly-created subsidiary, Sadot LLC, is its largest operating unit. Sadot is an international agri-foods company that trades and ships food and feed commodities such as soybean meal, wheat, and corn.
Muscle Maker formed this division in partnership with Dubai-based AGGIA LLC FZ, an international consulting firm that provides services to companies operating in the global food supply chain. Since its founding, this division has quickly become Muscle Maker's dominant concern.
Goldman Small Cap Research projected a US$4.50 per share six-to-nine-month price target on Muscle Maker.
In addition, the company maintains its legacy storefront operations through the aegis of MMI Restaurant Group. The group's business focuses on its limited collection of 50+ restaurants, including Pokémoto Hawaiian Poké & Boba Tea and Muscle Maker Grill. This division also oversees the subscription, fresh-prep meal service, Superfit Foods, with over 30 distribution points plus in-home and national delivery.
All three consumer-facing concepts compete in the growing healthier-for-you segment, and national franchise development of the Pokémoto concept is the division's key growth driver, with more than 50 franchise units already in the pipeline.
The Catalyst: Strong Sadot Earnings
On June 1, Muscle Maker announced that it achieved top-line revenue of over US$58.9 million for April, marking the achievement of six consecutive months above US$50 million in revenue for the company.
The announcement cemented the ongoing success of the Sadot LLC subsidiary, which has provided Muscle Maker with over US$418 million since the subsidiary's inception in November 2022.
"April's results reflect our continued growth in the global supply chain of Agri-commodities," explained Muscle Maker CEO Michael Roper. "Sadot continues to generate significant top-line contribution and increasing exposure to the global markets and players within."
Why This Sector? Best of Both Worlds
By straddling the gap between front-end, consumer-facing restaurant franchises and back-end, global bulk agriculture trade Muscle Maker has positioned itself well for investors seeking exposure to both these lucrative markets.
On April 25, Alliance Global Partners initiated coverage on the company, giving it a Buy rating with a target price of US$2.40.
It aims to expand its reach further going forward, with a play in producing some of the commodities it now actively trades.
As CEO Roper explains, "In addition to our trading activities, we recently announced the acquisition of the 5,000-acre grain and fruit farm in Zambia, which we believe represents the next step of building the foundations for growth and diversification into additional verticals in the supply chain."
The farm in the Mkushi region of Zambia is expected to generate revenue by the end of the harvest season in 2023.
Why This Company? Undervalued Model
On April 25, Alliance Global Partners initiated coverage on the company, giving it a Buy rating with a target price of US$2.40.
Then on May 24, a Goldman Small Cap Research report broke down what makes this business model function so well.
The research firm projected a US$4.50 per share six-to-nine-month price target on Muscle Maker, equivalent to 15 times US$0.30, the amount Goldman forecasts as 2023 adjusted earnings per share (EPS) for the diversified, food-focused company. The stock was trading at about US$1.35 per share at the time, implying a potential 233% gain for investors.
Goldman noted that thanks to Sadot, Muscle Maker is "recording substantial revenue and net income results, on an adjusted basis."
Goldman noted that thanks to Sadot, Muscle Maker is "recording substantial revenue and net income results, on an adjusted basis." The report also pointed out that Muscle Maker is benefitting from the service agreement it has with AGGIA to run Sadot, calling it a "creative pay-for-performance plan that, in our view, is a major win for Muscle Maker and also a positive for AGGIA."
The analyst was equally pleased by Muscle Maker's plans for its consumer-facing segment, stating, "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."
Why Now? Rapid Growth with Lagging Valuation
On May 8, Technical Analyst Clive Maund wrote, "Although Muscle Maker is up some from where we bought it in the middle of March, basically it hasn't done much, as we can see on its latest 6-month chart."
"At the time, we thought we were buying it at a good price on a significant reaction, but as sometimes happens, it went on to react further so we could have picked it up at a better price later, but that said, it has now recovered its poise and is up from where we bought."
Clive Maund wrote, "Fundamentally, there are plenty of reasons for Muscle Maker's stock to continue to advance."
"The reason for this update is that it looks like it will soon break higher into another strong upleg. Basically, what happened with Muscle Maker over the past two months is that, after big gains, it had gotten tired and needed to take a rest, which it did."
"Fundamentally, there are plenty of reasons for Muscle Maker's stock to continue to advance. For a start, it is buying back its stock, but most importantly, the company is swinging from making losses to moving strongly into the black with very strong revenue and profit projections for this year and especially for 2024."
"We, therefore, stay long, and Muscle Maker is rated a Strong Buy here for a break higher into another potentially vigorous upleg."
Ownership and Share Structure
Streetwise Ownership Overview*According to Reuters, as of May 23, 8.43% of Muscle Maker's stock is held by management and insiders. Director Paul L. Menchik has 0.37%, with 0.12 million shares. Director Jeff Carl has 0.26%, with 0.08 million. Director Stephan A. Spanos has 0.25%, with 0.08 million, and Major Malcolm Frost has 0.23%, with 0.07 million. Other insider owners include Southall Alfred BIII Southall, Phillip Balatsos, Kevin James Mohan, and Michael John Roper.
15.40% is with strategic investors. AGGIA LLC FZ has 8.85%, with 2.85 million shares.
5.69% is with institutions. Catalytic Holdings LLC has 3.51%, with 1.13 million shares. Thoroughbred Diagnostics' has 3.04%, with 0.98 million, and Joey Giamichael of Thoroughbred Diagnostics has 5.04%, with 1.62 million.
The Vangaurd Group Inc. has 1.67%, with 0.54 million. Geode Capital Management LLC has 0.99%, with 0.32 million. BNY Mellon Asset Management has 0.53%, with 0.17 million, and Citadel Advisors LLC has 0.51%, with 0.16 million.
Other institutional investors include Walleye Capital, Northern Trust, and Virtu Americas LLC.
The rest is in retail.
Muscle Maker Inc. has a market cap of US$37 million with 32.2 million shares outstanding, and according to Market Watch, trades in the 52-week range between US$0.3000 and US$1.5989.
| Want to be the first to know about interesting Special Situations investment ideas? Sign up to receive the FREE Streetwise Reports' newsletter. | Subscribe |
Important Disclosures:
- Muscle Maker Inc. is an affiliate of has a consulting relationship with Streetwise Reports and has paid a consulting fee between US$8,000 and US$20,000.
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Muscle Maker Inc.
- Owen Ferguson wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
- The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
For additional disclosures, please click here.
