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

CAPS Rating: 5 out of 5

The Company is an international franchiser and confectionery manufacturer.


Player Avatar urogunner (< 20) Submitted: 1/9/2011 12:05:56 AM : Outperform Start Price: $9.01 RMCF Score: -16.86

I first found this stock researching Hershey in June 2008. I love chocolate and this stock seemed to have potential for a long term value investor like me. At $10.20 the stock was selling in its low range for the year (share price range $10.05 - 18.04). I liked the numbers including a Debt to equity ratio of near 0, a dividend of 4% and a return on equity of 38%. I took a bite. Little did I know a recession was in store. The stock dropped. Ouch! Rule number one: Don't lose money. Rule number two: Don't lose money. So what's a value investor to do. Take another look. I had already ordered their chocolate and loved it. So I stopped in at a store while waiting for a flight. I love chocolate so maybe I can't make a fair assessment. So I took my better half Monette. Hmm she liked it too. Ok I like the product and I can certainly understand the business.
So I took another look at the numbers in 2009. Past 5 year average growth: Revenue 6%, Earnings per share 13%, and free cash flow 7%. Debt :Equity=O. Current ratio 3.7. Return on Equity 21%. Return on Assets 17%. Dividend 4.7%. The stock was selling at $8.61 per share. I figured the intrinsic value was any where from $9 to $15/share.
What about management. The founder of the company Franklin Crail owned 10% of the stock. He seems in it for the long haul.
What about the future? One, the company could flounder and go out of business. Two, It could get through the recession and have average future growth, ( This should be pretty good for the stock price given its numbers and value). Three, It could expand or add a related business which could significantly improve the stock. So I bought some more and continued to buy as the stock dropped to $5.75.
Now the recent earnings report has come out and this looked like their earnings are gradually improving. They have also added the Coldstone Yogurt. (I don't know about yogurt. I am an ice cream guy myself, but Monette says it is good. I trust her). Recent stock price $10.50. I still like the company and dividend. I will hold onto the stock for now.

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