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In
This Edition... |
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Though
it's only been a week since our last edition, it's been a busy week.
We've got updates from the same two companies we heard from last week ...Spicy
Pickle, and Universal Delivery Solutions. Both took more steps toward
progress (i.e. a better top and bottom line). We'll look at both
announcements below.
Following that,
we're going to update our style and market cap outlook. Given the market's
recent shake-up, we think a fresh look at the areas starting to lead -
or
starting to lag - is in order.
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Universal
Delivery Has 'ZEST' |
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It was only
a week ago we were discussing Universal
delivery Solutions' (UDSG.PK) pending entry into another Easy Coast
delivery market, and their progress towards a bulletin board listing.
Today we got another dose of good news (and ultimately more revenue)...they've
added VITAZEST Water to their list of products they can handle.
 This
is an important customer to UDS Group for a couple of reasons. The first
reason is fairly obvious - more products to sell means more potential
revenue.
The second
reason may be the bigger one. While the partnerships developed so far have
largely been with quick-service restaurants, the VITAZEST affiliation
is validation that UDS Group's framework is not delivered-meal-specific...they
can handle all sorts or order/delivery service.
Under this agreement,
UDS will field all call-in orders VITAZEST Water products. Why?
According to VITAZEST's Director of Marketing, Universal Delivery has the
kinds of reporting/tracking capability VITAZEST wants and needs to grow
their business.
The agreement
between the two companies also paves the way into another important niche
market - consumers with restricted diets, or diabetics. There's
a pronounced lack of service for this growing segment of the population.
Both parties intend to work together to profitably fill that void. Exactly
how they'll do this remains to be seen; perhaps UDSG's affiliation with
healthier-than-average SUBWAY Restaurants will play a role.
Regardless,
Universal Delivery Solutions now has another revenue stream...one that
highlights their ability to act as a call center.
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Spicy
Pickle Sews Its Seeds |
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If you haven't
had a chance to eat at a Spicy
Pickle (OTCBB: SPKL) yet, don't worry - the company's making geographic
expansion progress at a pretty good clip. They just opened a new store
in Edmond, Oklahoma. It's the state's first Spicy Pickle, but the
same franchisee has a deal for six more. The search for the second site
is already underway.
This is the
13th state to enjoy the presence of a Spicy Pickle restaurant, and it's
the 41st Spicy Pickle to open its doors. Just for perspective, there were
only 26 stores up and running when we first started watching this company
in September, so you've seen tremendous growth in a very short period
of time.
 With
this addition, the corporation's top line should increase by somewhere
around $50K annually. The average store does about $700K in sales per year,
and the company's royalty/rebate rate is 7% of each unit's total revenue,
or about $50K.
That may not
seem like a great deal (and it's not), but bear in mind that dollar
amount is eventually going to be a very high-margin contribution to the
top line. The company's current overhead is mostly fixed. Once there are
enough stores to cover all the overhead, any incremental revenue from more
stores makes a big impact. Yes, there are minimal per-store expenses with
each new restaurant, but they're relatively small.
Our early estimates
of operational break-even suggested the company would need about 50 or
so units to reach that milestone. So, Spicy Pickle may quietly be getting
to an exciting time in the company's history.
From a trader's
perspective, we feel the key to the stock's success lies in getting above
90 cents. That's been the top edge of its recent trading range for a while.
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Style,
Market Cap Outlook |
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Value versus
growth? Small cap versus large cap? Any hot spots abroad? All great
questions. The tricky part for investors is how the answers seem to keep
changing. Though we can't predict the future, we can look at the present
and make at least a few assumptions about where things are going.
 On
the two nearby charts, we're looking at recent performance results - as
in percentage returns - over the last few months (since the March 17th
low). The first graph compares styles and market caps. The second graph
looks at some (not all) international markets ...maybe there's an
overseas opportunity we need to consider.
One thing is
clear, and it's been clear for quite some time...mid caps are on a roll.
Large cap value was never overly impressive, but became a liability a few
weeks ago.
What's interesting
here is a little less obvious - the leadership of growth over value.
For
the market to have just made a correction, we're sure not seeing the strength
from the groups that should hold their ground better in a pullback. The
fact that growth is still in front suggests investors are a little more
bold than they may let on.
 As
for overseas markets, no surprises here - Brazil is leading, and
is pulling up the broad Latin American market on its coat-tails.
The odd-ball
fighter here is Austria, though Canada has come on strong lately.
Dragging the
bottom is Spain, but only because Malaysia stopped their bleeding a week
ago. South Africa was an area of interest a few weeks ago, but has taken
a turn for the worst in the last month or so.
There's really
not much in the way of a 'trade' in these charts - it's more of
a foundational, longer-term idea. But, everything helps. Considering the
best cap/style index gained 19% in three months and the worst gained nothing,
there's clearly an edge in being in the right group at the right time.
The same goes
for international exposure. The top gainer is up more than 20% in three
months, while the laggards went nowhere. That's pretty significant.
Stay tuned to
the blog and newsletter for more updates on these groups.
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Updated: 3:10 pm PST (23:10 GMT), November 20, 2008
