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Granite City Food & Brewery Ltd. Message Board

  • taw4800 taw4800 Oct 25, 2005 11:45 PM Flag

    Future Guestimates

    The average P/E ratio for the restaurant segment is 17.6 , and a reasonable profit margin is 5.5%. If at the end of 2009 GCFB has 50 locations and averages 4.5 million gross per location. I will use a 7% profit margin because of GC lower brewing costs and use a P/E ratio of 25 because they are a fast growing business. If 20 million shares are outstanding, using 7% profit margin and 25 as the P/E ratio we would be at $19.70/share. Not a bad return in 4 years. With 25 million shares outstanding we would be at $15.75 share. Just food for thought.

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    • 5% net margins and $4.5 million average annual revenues are rather ambitious, especially if the company still has a large interest expense to overcome.

      From the most recent 10Q : "Average weekly sales decreased from $84,474 per week in the first half of 2004 to $78,868 per week in the first half of 2005."

      Average weekly sales of 79K annualizes to $4.1mm.

      Using 4.5%, $4mm, and a p/e of 30 on 50 stores and 22.5 million shares gets a stock price of $12. Still not a bad return, but is it worth the risk?

      Do a similar comparison with KONA which currently has nine stores to GCFB's ten and significantly higher revenues and margins. 6%, $5mm, 10 million shares (50% more than current level), p/e of 30. This gives a stock price of 45 or about double the return on GCFB.

      • 2 Replies to n_u_a_n_c_e_d
      • <<Do a similar comparison with KONA which currently has nine stores to GCFB's ten and significantly higher revenues and margins. 6%, $5mm, 10 million shares (50% more than current level), p/e of 30. This gives a stock price of 45 or about double the return on GCFB.>>

        One thing to keep in mind with KONA is that they spend much more to open a store than GC, If I remember correctly, it's like $2.3M vs $1.3M. (not counting land or structure) If those costs are capitalized, it takes the extra $1M in revenues to service the extra debt. It also limits where they can go because a location has to have the potential to do $5M to be viable.

        I think the major difference between the two companies is that GC is spending a lot more money up front getting an infrastructure in place that is capable of opening and running dozens of units. It's much easier to look at Kona's books and see that the concept is working because the metrics and margins make sense and it's more profitable on paper.
        Where you'll see the difference is 3-5 years down the road. GC will open their 50th unit long before Kona does. I'm not saying both won't be successful investments or that Kona's metrics aren't better, but Kona is not going to be able to open stores as quickly as GC and even though they make more profit on a per store basis, GC will have more stores and the potential for more profit. It's highly unlikely Kona's shares will return double that of GC in the longterm.

      • I used 4.5 million per restaurant by giving GCFB the benefit of the "honeymoon effect" taking place the past quarter. If there was a honeymoon effect, the sales should bounce back. The new locations are in tier 1 markets where sales should be higher then the tier 2 locations.

    • We are really going to have to maximize econimies of scale to get to a 7% margin.

      The way I'm looking at things right now G & A is running 14%, depreciation 5.7%, preopening expense 2.5% and interest expense 4%. They've said G & A will get back to 7%. If that happens and nothing else changes the company is only at breakeven. I've been thinking fermentus interruptus is the holy grail of cost savings but if they can cut tap beer costs in half over national brands we're only talking about a $.25 savings on a per pint basis. To get to 5% let alone 7% the company is going to have to bring costs into line or grow revenue. Having these new stores in locations which could do $5M or close to it would really help. (Or just sell a lot more beer!)

      Utilities are going to remain high for quite some time so that will be a drain on expenses as well.

      I'm still trying go get a grasp how economies of scale will relate to expenses. As time allows I'll attempt to do some looking at more mature companies and see how their cost structures are and attempt to break them down into a per store basis. I'll also try to find out more about these equipment leases to try to figure out the life span of the stuff related to the lease terms to see what can be used after it's paid for.

      • 1 Reply to honda4everrrr
      • I agree my assumptions are very optimistic. I wanted to show how difficult it would be for GC stock to be a 8-10 bagger in the next 4-5 years, which some on this board are suggesting. I believe a 5% net margin is far more likely than 7%. I also wanted to show how dilution can have an effect by comparing 20-25 million shares outstanding.

    • "Have you not noticed that both KONA & GCFB are 20% off their highs????"

      Come on. There is a lot of difference between the stock price performance of the two stocks... a whole lot of difference. You are just doing a selective computation. Here is the whole story.


      No comparison!

    • Thanks for the link to the press release. I didn't recall that sales figure in it.

      I have read your ananlysis on KONA and I think they are well researched but the fact that I pointed out to you was that the market analysed it and came up with on balance selling and not on balance buying. Current sentiments could well be wrong but all bullish sentiment on the stock to date has been wrong as well.

      I'm glad you brought up the 2002 drop in BJRI because I'm an expert on it. It doesn't compare to the KONA drop because in the year prior BJRI went up from around $4 to $10. KONA never had any price increase like that. The drop in BJRI coincided with something like a 10 fold increase in short selling which, in my view, fueled the subsequent BJRI run from 5 to 15 in the next nine months. KONA has only 1 day trading in open short interest. There is no comparison.

      Also, there was some kind of scandal at the investment banker that brought BJRI public and they didn't support the issue. This is not the case with KONA. Again, no comparison. There is something that the market hasn't liked about KONA so far.

      Don't get me wrong. I have no position in KONA and I wish you luck with it.

    • thats my point - if you bought GCFB in june, yes you are up, if you bought a year ago, you are flat. if you bought earlier in year and sold at low (like i can guarantee you many did)you went from 5+ to nearly 3, an approx. 40% loss. since you say you only like to buy stocks that go up, i assume you were brilliant enought to buy in june. dont get me wrong, i own both, and like to get input both pro and con on both stocks. but your postings are useless and idiotic.

    • <<KONA never had any price increase like that>>

      Thats not true Miggie. Just because the company was private you couldnt see it, but somehow the company went from a value of 0 to 50 million dollars.

      I think your analysis, which basically consists of a snapshot in time, is overly simplistic. I think the same of your view of the BJRI shorts. But you might be right. Anyway, time will tell. I think KONA most directly compares with PFCB and they are having a very tough time of it right now. KONA is going to have to prove itself, and the market will not give shareholders a payoff until it does.

    • Sorry, one last thing. Lets not forget that the KONA ipo was priced at 11. On the first day of trading it ran up to over 13 on very high volume. This is not reflected in the chart which starts with the first public trades which were at the 13 level. Since then, it has spent a lot more time and volume above 11 than below.

    • To add to that, it's quite possible that that the overallotment had a negative effect as well. It was something like 13% of the IPO.

      Let's say you wanted in but didn't get in on the IPO. So you buy on the open not doing 100% of your DD (out of a fear of missing out)and only find out that the over allotment was exercised after you made the purchase.

      Regardless it's nothing to get too concerned about. IMO 10 or so is the floor there and a 30% swing is nothing for small thinly traded companies.

      Personally, I don't put much faith in the pricing of an IPO to be an accurate picture of what value the market really places on a company.

      Prior to going public, It's the brokerages and the companies telling you what it's worth. The brokerages are selling the story because it's how they get paid. The better they sell the story, the more money which is raised. There are no short sellers or skeptics giving a contrarian point of view or arguing about valuation.

      After a company goes public, you got the shorts, the longs, the momentum players all involved. Many of those people haven't been indoctrinated by the brokerages. I seriously doubt if the brokerages involved in Kona's IPO are on the phone daily telling their clients to buy more because it's "on sale." If they are, I guarantee they're not doing it with the same level of fury as when selling the IPO. Why? They already made their money.

    • It happens that I bought GCFB in the first half of July when it was going up so I am not that brilliant. I do have a profit even after the recent drop.

      You can select whatever periods you want on a chart to make a point but what is stupid is to deny the entire history of KONA, which has been nothing but down, in comparison with GCFB in the same market as shown in the chart I linked in my post.

      If you find my posting useless and idiotic you have an easy way to never see them again. Just put me on IGNORE. You might be experiencing some cognitive dissonance by still thinking of yourself as someone who likes to "...get input both pro and con on both stocks...." You don't get that by insulting anyone who doesn't agree with you.

    • Well, of course my comments about KONA price performance was about the period since it went public. ALL companies go from zero at inception to some value and it is a stretch to say there is something unique and valuable about KONA considering it started from nothing.

      In defense of my simplistic approach is that it was not a chart of a selected period of time, it is a chart of the entire price history of KONA... for as long as it has been public, if it needs that qualification.

      I don't agree with you at all on my view of BJRI shorts from the time it went from 10 to 5 and then up to 15. If you go to the BJRI thread at the time you will see frequent and detailed rants of mine about what was going on with the shorts then. It was the most significant dynamic effecting the stock price at that time.

      I agree entirely that time will tell, it always does. The trick is to predict what it will tell and put your money on the line. KONA has to overcome whatever the market has against it now and you may well be right in predicting that it will do it.

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