Muscle Maker, Inc.’s (NASDAQ:GRIL) NASDAQ listing happened at a terrible time for a food company. And yes, the year 2020 is the right guess. It went public in February 2020 for $3.7 per share, and in the next 45 days, it lost more than half of its value. Since then, the stock price has been going down, going as low as $0.30 in November 2022. After the turning point, the stock went up five times and is now worth $1.51.

By getting money from an IPO, GRIL has made huge steps toward growing its business. They have shown that they are determined to reach this goal by buying two big businesses in 2021: Pokemoto and Superfit Foods. As a result, their revenue doubled from the previous year to 2021, and they had already passed it by 2022, even though the results of the last quarter were still being calculated. According to the many press releases sent out by Sadot LLC, a wholly owned subsidiary of Muscle Maker, after its vertical integration project with AGGIA LLC FZ, this conclusion is expected to be very good for investors (an international consulting firm comprising experienced executives with extensive backgrounds in the food and agricultural supply chain industries). A news release from GRIL on February 6 says that in the first three months of business, Sadot made $209 million in sales and a net profit of more than $3.3 million. Muscle Maker gave investors an update on Sadot’s income, which made the market go crazy.

About the Company

Muscle Maker’s fast-casual restaurants are known for serving fresh, healthy meals that are high in protein. It bought Superfit Foods, a company that makes meals, and sends them to 34 refrigerators owned by the company that is in gyms and wellness centers in Florida. Superfit is only available online, and if it gets more subscribers, it will have a great chance of making great margins from recurring income. Also, it bought Pokemoto, a Hawaiian poke restaurant with chef-driven modern flavors and fresh, healthy ingredients that are popular with foodies, health nuts, and sushi fans. Sadot LLC was set up by GRIL to help it grow its business. Its goal was to create a global food company with sustainable farming, shipping, and trading of agricultural commodities, distribution, production, restaurant, franchise, and meal prep businesses.

Franchisees, Menu Options, and Sales All Went Up by a Lot

Pokemoto is a fast-growing restaurant franchise that has been given permission to sell franchises in all 48 continental US states. New York was the last state to give permission. Since the beginning of 2023, Pokemoto has opened a new location every week. The company has also signed a number of bulk franchise agreements, bringing the total number of locations to 60. Foxwoods Resort Casino, which is the biggest resort casino in North America, and Pokemoto signed a deal on January 19 to open 19 sites in Connecticut. Saladcraft is a place where you can make your own salad bowl with more than 60 unique, high-quality ingredients and dressings that are made by hand. Pokemoto has teamed up with Saladcraft so that franchisees can use Saladcraft as a “ghost kitchen” in Pokemoto locations and have it delivered by a third-party service.

Since 2015, Muscle Maker has been running at a loss due to low sales and high costs for selling and running the business in general. From 2014 to 2020, the company’s sales went from $2.5 million in 2014 to $7.2 million in 2017 and then went down to $4.5 million in 2020. Still, Muscle Maker’s sales have gone up since it bought new companies, and more growth is expected as all of its subsidiaries add new sites and clients.

Good Financial Ratios and a Wide Range of Products

The partnership with AGGIA is a key part of its strategy to diversify, and the terms of the partnership are complicated and good for the business. The contract has a number of clauses about how shares of Sadot LLC will be given to AGGIA and how AGGIA officials will be put in charge of Sadot. These conditions only depend on how well Sadot does, which is mostly taken care of by AGGIA. Sadot has already made money in its first three months of business, so the relationship has turned out to be a pleasant surprise, and GRIL doesn’t face any risks.

When growth is the main goal, having a debt-to-equity ratio of only 1:5 and a fast ratio of 5.16 is no small feat. The average quick ratio for a business is only 0.64, and the average debt-to-equity ratio is 157%. The main reason for this is that most of the company’s acquisitions were made in exchange for shares. This shows how much trust the people who bought the company had in it.

Operating Cash flows and a Net Income That Is Less Than Zero

The only risk is that the company can’t make money after being in business for so long. Also, the company has never had a positive operating cash flow since it began. Even though the most recent trends and agreements might change these numbers, it hasn’t shown that it can manage and allocate its capital well enough to create long-term value for its investors.

Based on the company’s growth so far in 2022 and its efforts to improve its relationship with investors, Muscle Maker stock may get some coverage from analysts in the next year or quarter. Growing recurring income while cutting costs, especially fixed costs, seems to be good only for investors. It might not be profitable in FY 2022, but it will probably get a lot of investors after announcing its Q4 earnings on the 17th of the following month. That should be a turning point for the company as it moves into the crowded food market. Even though it has given me a lot of money in the last three months, I think the stock will keep going up, so I will definitely add it to my portfolio.

Bottom Line

Every week, new Pokemoto franchises open up, but the company is only in 16 states right now. This gives it a lot of room to grow. I currently rate GRIL stock as a Buy because of the huge shipments of food oils, white wheat, and soybean meal that follow. Each shipment brings in an average of more than $2 million in income.

Featured Image: Unsplash @ ferksguare

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