Rocky Mountain Chocolate Factory, Inc. (NASDAQ:RMCF)

tekennedy (64.68) Submitted: 12/13/2010 4:38:30 PM : Start Price: $9.03 RMCF Score: +11.87

I am happy this company has become ratable. From a longterm investment standpoint this has considerable potential. The company is 1/2 francisor, 1/2 packaged goods company (Although it mainly sells to franchisees: the company earns a franchise fee for items not manufactured by them and earns a profit from items it sells to franchisees). They are able to earn healthy returns, helped in part by the franchise model and them owning next to none of the stores. Their earnings are down recently because of the slow economy and will likely stay down for another year or so due to their dependence on travel (a significant number of their stores are reliant on air travel/tourist locations). Over the next 5-10 years the story becomes more enticing. I expect store growth over time to add meaningfully to earning, with the potential for huge growth if the dual branding with Coldstone works favorably (early results seem promising). Coldstone seems a great match as pairing the stores removes seasonality as RMCF stores often are busiest around Christmas while Coldstone is seasonally slow at that point. Bringing on board the name recognition of Coldstone is a big plus as well and if only 10% of the Coldstone stores are interested in selling RMCF candies that adds a solid 150 locations. With or without them RMCF has the potential to benefit as management has recently started a frozen yogurt franchise. I like the business, management seems to be doing well and the price is fair. I intend this to be my next purchase.