Ark Restaurants Corp (ARKR)

[BigCat]

Bruce Geller Finds Beauty in Microcap Stocks

Ark Restaurants [ARKR] has a $71 million market cap. It operates 21 full-service restaurants and bars and about 19 fast-food operations. Ark puts out a quality product in a high-volume environment. Recently, it purchased 11% of New Meadowlands Race Track. In November, New Jersey will vote on whether to allow gaming in northern New Jersey. New Meadowlands is perfectly situated. You aren’t paying for that in the current valuation.

Ark generates a double-digit pretax return on assets. There is no sell-side research. On quarterly conference calls, I’m usually the only person. It trades at about $21 [versus a 12-month high of $26], and for about six times earnings before interest, taxes, depreciation, and amortization. It has minimal debt. In the first half, earnings were down due to the increase in minimum wages around the country, especially in New York. The second half should be much better. The restaurant group trades at eight to nine times Ebitda. That kind of valuation would put this stock around $30. It has a 5% yield. In the past 10 years, Ark generated $17 a share in free cash flow.

http://www.barrons.com/articles/bruce-geller-finds-beauty-in-microcap-stocks-1466828652