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Occasionally, we toss stock investment ideas back and forth with our peers and contributors. Recently, we have been communicating with Richard Howe (@stockspinoffss) of StockSpinoffInvesting with the intent to regularly share some ideas on the stocks we cover. A quid pro quo.
Rich kicked off our collaboration with his thoughts on what he believed to be an interesting setup with the LGL Group (NYSE:LGL) and its subsidiary M-tron Industries (MPTI), into which a spinoff was affected Friday.
At one time, LGL was in our Model Portfolios. M-tron manufactures highly engineered products for aerospace defense and satellites, an industry that has been rapidly recovering since the Covid pandemic started to abate. After the spinoff, LGL is left to operate in the power/current control business.
The spinoff company M-tron is generating $28 million in revenue, $2.4 million in earnings, and $2 million in net income. As such, its implied value is 13x EBIT and 16x net income.
Rich’s feelings on the opportunity were somewhat neutral, with a caveat:
“So I think this is probably a pretty good business with good margins in the midst of a cyclical recovery. But it doesn’t seem like an obvious set up for me so I am likely, unless the price changes a lot, not going to be recommending buying this stock ahead of this transaction. What could get interesting is, who knows, M-tron could get sold off indiscriminately. That could present a kind of interesting opportunity. The [remaining company], which is going to be basically a cash box that Gabelli is probably going to do interesting things with, could sell off too so if it trades off below cash that’s probably worth a buy.”
His thoughts on this are below.
It turns out that after the distribution, M-tron Industries did go down 9% after its separation from LGL on October 7 (last Friday), but we are not sure that we would qualify that as indiscriminate selling. It was also another lopsidedly bearish day in the market, so Monday might give a better indication of investor sentiment on MPTI during its first week as an independent company.
We plan to continue to monitor Rich’s thoughts on this to see if he thinks any calls to action are warranted on MPTI or LGL.
Another highlight of this past week was our comprehensive Fireside discussion with an executive at Muscle Maker, Inc. (NASDAQ:GRIL), a company that delivers high-quality healthy food options to consumers through traditional and non-traditional locations such as military bases, universities, ghost kitchens, delivery and direct to consumer ready-made meal prep options. Brands include Muscle Maker Grill restaurants, Pokemoto Hawaiian Poke and SuperFit Foods meal prep. The menus highlight healthier versions of traditional and non-traditional dishes and feature grass fed steak, lean turkey, chicken breast, Ahi tuna, salmon, shrimp, tofu and plant-based options.
Joining us was the company’s CEO and Secretary, Michael Roper, who has been in the food franchising business for 22 years. He “started off in restaurants in the year 2000 as a Quiznos franchisee out of the Chicago area.” Michael referenced his story as having been a “mailroom to the boardroom” saga that at the time culminated with him being the Chief Operating Officer of Quiznos worldwide.
After his time at Quiznos he eventually got back in the game and helped resurrect a failing Mexican style restaurant that had been underperforming for 7 years.
Through other endeavors, it’s clear that his acumen for entrepreneurship and transformative business practices allow him to fit right into Muscle Maker.
In this clip, he went into how he began the next stage of his career at GRIL (click here or below to watch/listen):
It was made perfectly clear that the Muscle Maker is hyper-focused on making the Pokemoto Hawaiian Poke restaurants portion of the business the main strategic focus for a myriad of reasons, laid out in this clip (click here or below to watch/listen):
The full in depth conversation can be found here, where Michael elaborates further on the POKE concept, and answers questions on the company’s revenue model, target market, planned expansion and overarching franchise strategies that GRIL plans to execute.
While it remains to be seen if Michael will be successful in the turnaround of GRIL, given his pedigree (along with a great management team he has assembled) we are eager to follow his progress, which seems to be beginning to bear fruit.
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Insider Buying Information Arbitrage Monitor
Wavedancer, Inc. (NASDAQ:WAVD) – CEO James Benoit continues open market buys with two form 4’s filed this week, adding 11,482 shares.
Research Cliff Notes
Rave Restaurant Group, Inc. (NASDAQ:RAVE) Cliff Note
A storied Pizza franchisor that we want to watch solely due to commentary in press releases that after years of stagnation, the company is poised to grow due to innovating its menu, improving customer service and look and feel of restaurants, adopting more modern ordering and point of sale technology and embracing a social media strategy.
“After nine consecutive quarters of profitability, we are transitioning from a turnaround to a stable company primed for growth,” said Brandon Solano, Chief Executive Officer of RAVE Restaurant Group, Inc. “Our fourth quarter and fiscal year show significant same store sales growth at both Pizza Inn and Pie Five, net income growth, EBITDA growth, and strong operating cash performance.”
“While maintaining the discipline of strong cost controls, we continue to invest in the future of our business,” Solano said. “We are laying the foundation upon which our future performance will be built. We expect that key initiatives such as our Pizza Inn rebranding efforts, reimagined Pizza Inn buffet experience, and Pie Five menu relaunch, will provide returns long after our initial investments.”
“Earlier in September, RAVE announced a modernized Pizza Inn logo, a more confident version of the brand’s mascot, Jojo, and a fresh new retail design aimed at an enhanced consumer buffet experience with built-in social media shareability.”
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