Spicy Pickle: Poster Child for Progress

Are micro caps ready to rebound? While we can't say every single one is ready to roll, several of the ones we keep tabs on are perking up. Spicy Pickle announced yesterday another key step towards better top and bottom lines has been taken. Universal Delivery Solutions broke a key resistance line. And finally, Hurco - a stock we mentioned way back on November 19th - seems to have retreated all the way back to a major support line...and pushed off of it again.
 

Spicy Pickle

If we had to pick a poster child for steady, reliable corporate progress, Spicy Pickle (OTCBB: SPKL) would be our choice, hands-down. Since we began our coverage in September, we've seen frequent communication and total transparency from the company almost every week. 

As such, yesterday afternoon's announcement wasn't a surprise. It was, however, another layer of evidence that Spicy Pickle can make and execute a plan. 

The deal is simple...remember the company-owned restaurants Spicy Pickle raised funds for back in December? They signed leases for two of them - both in Colorado. You might recall they raised enough money for a dozen or so company-owned stores, so we anticipate more announcements like this one over the course of the next several months. 

What's that matter to investors? Quite a bit actually. Owning your own can be more profitable than what is essentially leasing them out to franchisees. 

Just as a reminder, each franchise hands over 7% of the store's top line to Spicy Pickle Franchising every week. With the average unit doing about $700K annually, that means each restaurant contributes about $50K in high-margin revenue to the corporate office each and every year. The individual restaurant owner retains the remaining profits. Given the fervor of demand for franchises (as we've seen multiple times in just the last few weeks), the bottom lines for the individual restaurants is presumably quite healthy. 

Rather than rely solely on franchise royalties, if the company owns their own stores they can add flexibility to the cash flow - and create more of it. All the details are in the press release below.

That said, the way the company demonstrates progress may well be the reason this stock has been able to shrug off what was otherwise a very troubled market. Take a look at the nearby chart to see what we mean. SPKL is basically where it was in mid-November. That's considerably better than what happened to the rest of the market (which is well under its early November levels). If a stock can hold its ground in a rough environment, how will it perform in the decent environment the Fed is doing everything they can to create?

During the market's soft patch, SPKL was also kind enough to establish a set of support and resistance lines...a trading 'zone' with an expiration date. The rising support line and the falling resistance line will eventually intersect. The shape is called a wedge (or triangle), and as the chart moves from left to right, obviously one of those lines will have to break. Moreover, given the length of the sideways movement so far, the breakout - bearish or bullish - could be quite size-able. Many traders are chomping at the bit thinking about the potential here.

Is there any underlying hint about which direction this wedge will ultimately send shares? Not really on the chart itself, but check out the volume. Several accumulation days, and really no significant distribution. 

We're looking forward to seeing the Spicy Pickle story continue to unfold.
 

Universal Delivery Solutions

For a company that hasn't had any real news of late, Universal Delivery Solutions (UDSG.PK) shares sure are acting like the market had a change of heart. Before January 16th things were not going well. After January 16th, things have been going great. A little news would be nice, but if UDSG can do it on its own, so much the better.

That being said, today's news may have pre-emptively had a little something to do with the recent strength. We knew UDS had been in a trial period with Subway restaurants, processing the phoned-in delivery orders through the number 1-800-SUB-TO-GO. Per today's press release, the pilot program has been expanded to include downtown Manhattan - a huge market, and a huge feather in UDSG's cap for future credibility purposes. 

Anyway, UDSG is not only above a key resistance line, but also above the 50 day moving average line - for the first time since late October. 

The unofficial word from the company about moving from the pink sheets to the bulletin board? They're guessing probably sometime around March, as long as the SEC doesn't send the application back with questions or comments. The matter isn't entirely up to the company, though we do think it should be soon. That may be the reason for the recent strength...the prize is in sight. And if it's not the reason, maybe it should be. 
 

Hurco Companies

Ready to get in the time machine and make your way back to November 19th? That's when we first saw Hurco Companies' (NASDAQ: HURC) shares. We were very impressed with the underlying fundamentals, but were completely unenthusiastic about the technicals at the time. HURC had taken a big hit after peaking at $60.44, and seemed poised to dish out more pain before finally finding a bottom. 

Well, sink it did - all the way back to the long-term support line we plotted on the chart at the time. The problem? That line was at $30.00 by the time HURC finally found it again.

There's a silver lining though, possibly. Hurco ended up pushing off that line, and is now working on a recovery.

The jury is still out on whether or not the stock can make good on the effort, but we'll say this... the fundamentals looked good when shares were trading at $39.89 in November. At the current level of $36.57, they're even better. 

Will that undervalued reality actually ever be reflected on the chart? Things aren't that simple. Great fundamentals didn't prevent shares from getting cut in half, but we have to assume a stock's true value will eventually materialize on a chart. So, given enough time, the stock could be right-priced. 

Just to catch you up, the company's current P/E is 11.3, with a forward-looking P/E of 9.3. Net margins are 11.2%, and quarterly earnings have been growing at 19.8%. A price/sales ratio of 1.2 rounds out the undervalued scorecard. 

Here's the Spicy Pickle news.
 

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The Managing Member of Pacific Shores Investments, LLC purchased 200,000 shares of Spicy Pickle at $.25 per share. This purchase was made in a Spicy Pickle private offering back in November of 2006. The Managing Member of Pacific Shores Investments, LLC has also purchased 50,000 shares of Spicy Pickle in the open market with an average cost basis of $.55 per share. Additionally, Pacific Shores Investments, LLC has been paid a fee of $30,000 cash and 250,000 shares of newly issued restricted stock by Spicy Pickle Franchising, Inc. for coverage of the Company.

Pacific Shores Investments, LLC has been paid a fee of $50,000 cash and 1.5 million shares of newly issued restricted stock by Universal Delivery Group, Inc. for coverage of the Company. Additionally, the Managing Member of Pacific Shores Investments, LLC has purchased 730,000 shares of Universal Delivery Group, Inc. in the open market with an average cost basis of $.044 cents per share. Additionally, Pacific Shores Investments, LLC has also purchased 1,000,000 free trading shares in a private transaction from a third party at an average cost of $.051 cents per share.

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