Buy Ark Restaurants As A Recovery Trade With The Stock Trading At 17% FCF Yield And 6x P/E Based On 2019 Financials
Published Oct 9, 2020 on Seeking Alpha

Seeking AlphaLong Ideas | Services Buy Ark Restaurants As A Recovery Trade With The Stock Trading At 17% FCF Yield And 6x P/E Based On 2019 FinancialsOct. 9, 2020 9:08 AM ET|| About: Ark Restaurants Corp. (ARKR), Includes: CMG, DRI, MCD, PLAY, SBUX, TAST, YUMby: Value Investment PrincipalsValue Investment Principals Small-cap, Deep ValueSummaryGreat "Unlock & Recovery" trade, we see 67% upside, as the stock recovers from being down -50% YTD to pre-crisis levels.
The company has a 17% FCF Yield and 6.3x P/E multiple on 2019 actuals.
Ark Restaurants has a trailing 2019 8.3% dividend yield, resumption expected next year on strong FCF recovery.
37-year operating history, will survive and thrive in industry with 61% of restaurants going out of business due to Covid-19.
Ark Restaurants is soon to reach breakeven cash flows, with marginal monthly cash burn.
We believe the stock of Ark Restaurants (ARKR), a niche operator of specialty restaurants with a 37-year operating history, offers investors a great "unlock and recovery" opportunity. It is only during these past few months, like any other restaurant business, that this company has been hit really hard. We believe, given that the stock is trading at -50% of pre-pandemic levels, that ARKR is at an inflection point. From the current price, we see a buying opportunity and potential 67% upside, as Ark Restaurants has seen the worst and looks towards recovery with limited downside. According to Yelp, 61% of all restaurants in the industry have closed for good, and with Ark being a survivor in our opinion, it will have less competition and likely more customer traffic in the future.
As of September, most of the restaurants have turned cash flow positive, and on a whole, the company has managed to breakeven with only -$200,000 in monthly cash burn [a marginal sum for the company]. We think the company will touch steady-state revenues/EPS by FY09/2022 and erase all Covid-19 related losses in its stock... Read more