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Ark Restaurants: Pure Unlock And Recovery Play Trading At 11% FCF Yield With 51% Upside

Published Thu, 24 Dec 2020 10:44:57 -0500 on Seeking Alpha

Seeking AlphaLong Ideas | Services Ark Restaurants: Pure Unlock And Recovery Play Trading At 11% FCF Yield With 51% UpsideDec. 24, 2020 10:44 AM ET|| About: Ark Restaurants Corp. (ARKR)by: Value Investment PrincipalsValue Investment Principals Small-cap, Deep ValueSummaryPure “unlock & recovery” play and an “under-followed gem” with upside of 51%.
P/E of 11x, with FCF Yield of 11%, on normal year FY9/2022e shows Ark Restaurants is still very undervalued.
Management says company will reach positive cash flow in June fiscal year 2021.
Ark Restaurants is a survivor with more market share as 17% of the restaurant industry closes its doors.
The company acquires restaurants and the underlying land, adding hidden asset value to the books.
Ark Restaurants (Nasdaq: ARKR) is a "unlock and recovery" trade with upside of 51% during these difficult Covid-19 times. Company management is optimistic that all of its restaurants will be operational by June of 2021, with positive cash flow generation. These encouraging times ahead will create opportunities for earnings surprise and pent-up demand as consumers start eating out again. We expect Ark Restaurants to trade looking beyond Covid-19, and despite this third wave, we see silver linings ahead. With the rollout of the vaccine, we see favorable risk-reward for this company.
Ark Restaurants reported its fourth quarter and fiscal year ended results this September, with a quarterly EPS of -$0.54 and revenue of $21.7 million (-48% YoY).
Price Target & Evaluation
We had previously recommended Ark Restaurants at $12.00 on October 9, 2020 (see here), and it has gone up 50%. We are now revising up our price target to $27.20, which will further add 51% upside from today's price of $18.00 for this stock.
To reach this revised price target, we have used our estimated EPS of $1.70 on a steady-state FY09/2022, and a P/E of 16.0x, which when multiplied gave us our price target of $27.20. We used FY22... Read more