The only thing worse than blatant stock promotion like this is subtle stock promotion.
Where the author might not own shares or get compensated to produce propaganda, but knows someone who owns a ton of shares and gets $ on the backend or gets favors or gifts from people with shares under the table.
It’s nearly impossible to prove, but it happens ALL the time with penny stocks and popular Seeking Alpha is the main vehicle by which this happens.
I’m shorting one of these stocks which I think it a subtle promotion right now and it’s a great educational opportunity so you can watch it collapse in realtime when the pump is over so this post won’t have many links…at first…but mystudents and I have seen this many times before.
I’m short a ton of PZZI at 3.46ish, it’s currently 3.55 as I write this so I’m down a little but excited to see this thing collapse over the next few days due to the fallout from these misleading articles which make it seem like PZZI is a ground floor opportunity to own the next hot restaurant stock…neither mentioning the dropping same store sales in just a few locations and the fact that the CEO just resigned a few weeks back and is now publicly trashing the business model.
The first misleading article came out on August 8th and immediately caused a giant spike due to the author wisely linking tot he popular tickers PNRA BWLD CMG, three of the top performing casual dining stocks.
Let’s analyze some of the misrepresentations in the article:
Many of us would like to go back in time for a chance to invest in a company like Chipotle Mexican Grill (CMG), Panera Bread (PNRA) or Buffalo Wild Wings (BWLD). These companies have provided explosive returns for shareholders and still continue to grow.
As an example, Chipotle shares were trading for about $50 in 2009, and went on to recently trade for over $400. Panera went from about $43 in 2009, to nearly $160 today, and Buffalo Wild Wings shares, just about $23 in 2009, recently peaked out around $90.
All of these brands demonstrate the power of a strong concept and the viability of affordable dining with sandwiches, burritos, etc. We can’t go back in time, but we can look for new concepts that offer unusually strong potential. While Panera, Chipotle and others have been great stocks for the past several years, these companies are much more mature now, and smaller companies could be poised to grow faster and outperform those stocks going forward.
Here the author makes the reader believe PZZI is the next hot concept and it offers a chance at getting in on the ground floor of the next CMG PNRA BWLD…I too once believed this when PZZI’s Pie Five subsidiary was new and their sales were hot as you could see from this article of mine, but PZZI’s stock tanked 80% because sales of Pie Five began sucking and the CEO resigned.
More importantly, the former CEO of PZZI gave this telling interview in regards to his new job and said it was tough managing two brands with totally different marketing aka Pie Five ain’t blowing up anytime soon:
Over the past year, Morrison has built a series of Pie Five Pizza Co. locations throughout the DFW market. The fast casual concept was a new mode for the company, which traditionally focused on pizza buffets. Morrison hopes to expand the Wingstop Sports concept, which launched last year with a Brownsville location.
“Managing two concepts is not easy to do, especially when you are trying to grow one while maintaining an existing established brand, but in this case they both carry the banner name of Wingstop compared to what we were doing here with two completely different brands,” Morrison said.
As stated on page 12 of their latest quarterly report, Pie Five store sales were roughly $12,000/week over the past 3 months, down from $12,700 over the past nine months and down a ton from this comment the CEO who just resigned said back in November of 2011:
“We wanted the concept to deliver $12,000 to $14,000 a week in sales, and we are well exceeding that expectation,” Morrison told Nation’s Restaurant News.
Messages like this certainly don’t help:
I live in Dallas. It appears that the Knox/Central store is really underperforming. They are dropping free coupons in the area; the store is empty most of the time. Parking lot looks sad. It is much larger than the other location I have been to (Addison), so it probably is more expensive to keep open too.
But the Seeking Alpha author isn’t concerned with tracking actual sales, he focuses on BS:
The pizza business is huge, with an estimated $40 billion per year in sales. Plus, pizza works in a tough economy because it is more affordable compared to other food options, and almost everyone likes pizza. A company called Pizza Inn Holdings Inc. (PZZI) owns both Pizza Inn restaurants and a new small, but fast-growing chain called Pie Five Pizza. The stock appears very undervalued based on current operations, but what is really exciting is the growth potential of this under-the-radar company because of a new concept it has developed.
This company recently won the prestigious 2012 Hot Concepts! award for its Pie Five Pizza division from Nations Restaurant News, which tracks the industry for innovative new concepts with high growth potential. Since the Pie Five concept was launched in the summer of 2011, the company has opened 6 restaurants and a 7th restaurant is now under construction. Because the concept has proven to be very promising, the company is planning for expansion and it has announced plans to franchise and develop multi-unit franchise agreements.
Yup, Pie Five is certainly a cool concept and it should win awards…however the fast dropping same store sales show consumers aren’t buying it, so forget comparing it to still-fasting-growing companies like Buffalo Wild Wings, Chipotle and Panera, Pie Five might not even last past a couple of stores…probly the reason the CEO just resigned in favor of another company and publicly ripped on the Pie Five/Pizza Inn dual-marketing business model.
The misleading Seeking Alpha author goes on:
The opportunity to buy the stock at cheap levels may not last for long. Earlier this year, these shares even trading over $6, but the stock dropped along with the markets and also because the company reported only a penny per share in earnings for the fiscal third quarter, which ended on March 25, 2012. But a big reason for the lower earnings was because of pre-opening costs associated with new company-owned Pie Five restaurants.
He rightly focuses on the higher than expected startup costs, but he still doesn’t want to mention the dropping same store sales. He goes on:
The company has a strong balance sheet with about $700,000 in cash and just around $1.86 million in long-term debt. The company is profitable and it has about $44 million per year in revenues. This means a fast-growing new concept like Pie Five, could make a significant impact on revenues.
PZZI has always had a strong balance sheet and the stock did absolutely nothing for years, languishing in the $1s…the “fast growing new concept Pie Five” is what spiked the stock, but again, it’s not fast growing as the same store sales have dropped significantly in just a few months which is why I think this stock goes back to the $1s and I wouldn’t be surprised if they bagged the whole Pie Five concept shortly due to the costs and underperformance.
And this is the most blatant piece of misinformation:
Obviously there is a lot to like here, and the shares look very undervalued, especially considering the growth potential. One analyst sees this stock eventually going to $11.50 per share as the Pie Five rollout progresses. Whether or not this stock becomes the next “mini” Chipotle or Panera, it appears to have plenty of upside at current levels.
The “analyst” who sees PZZI at $11.50 is linked to yet another Seeking Alpha article from February entitled “These Restaurant Stocks Should Continue Their March Higher” written by Matthew Smith whose bio reads:
About the author: Matthew Smith
Follow us on Twitter here: @theinvestar Editor of theinvestar.com, LLC. theinvestar.com, LLC is a leading news provider on the potash and uranium mining industries supplying data services, commentary, interviews, investment news, and quarterly industry publications.
This “analyst” specializes in mining stocks and his website here hasn’t been updated for over a year since April 2011. Not to mention that his $11.50 price target came from this passage:
The stock which intrigues us the most is Pizza Inn (PZZI), up 14.18% since our previous article with most of those gains coming from trading Tuesday. We own shares, bought shares on February 7th in order to increase exposure before earnings and eagerly await what the company has to say on February 8th. We have tried to get data to create our own numbers, but have been unable to obtain the basic information from the company despite requests. Regardless, our assumptions on the Pie Five concept, when put on paper, point to strong revenue growth quarter-over-quarter and year-over-year. We think that the stock has the potential to rise to $11.50/share as the company rolls out new Pie Five units.
…and this was written on February 8th, the day before PZZI imploded 30% from the $6s to the $4s after reporting terrible earnings and the nasty diminishing same store sales of “hot concept” Pie Five.
OK so that article is complete shit, but it still spiked PZZI from $2.40 to $3.10ish the past few days…then over the weekend, the second misleading article came out, squeezing early shorts…like me…but the good news is I didn’t have a big position until today because while the runup was artificial, the pattern wasn’t right as described in my 7 free video lessons and truth be told still isn’t perfect for shorting, but I want to alert you my precious readers early so you can watch this collapse over the next few days…and ideally it spikes even more first so I can build my position at higher prices!
This is what the 2nd misleading Seeking Alpha article says about PZZI:
Pizza Inn, Inc. (PZZI) operates a chain of pizza restaurants (over 300 locations) that are located in both the U.S. and internationally. While the “Pizza Inn” restaurants have been seeing relatively steady (if not boring) sales for the past couple of years, there is something much more interesting to consider about this company. It recently launched an award-winning new pizza restaurant concept called “Pie Five Pizza”. It is similar to the affordable, open-kitchen and made-to-order with fresh ingredients format that has made Chipotle Mexican Grill (CMG) so wildly successful.
The company has already opened six locations in the first year of business for this concept, and going forward, it plans to expand rapidly with multi-unit franchise agreements around the United States. Just days ago, it was announced that the company received and will formally accept the award for Pie Five as a hot new concept, on September 30, 2012, at the annual MUFSO Supershow. This further validates the “Pie Five” concept as a winner and could add more national exposure to investors and franchisees.
The company is currently being run by an interim CEO, but it is looking for a new candidate that can multiply the initial success that this new concept has had, and take it to a new level, nationally and internationally. If the company appoints a high-profile CEO with the right background of developing fast-growth in the restaurant business, this stock could be headed back to the highs it saw earlier this year of more than $6 per share. That would provide current investors with a double, but if this company succeeds in becoming the “Chipotle of Pizza”, then even a $6 price target will look way too conservative.
PZZI is now “award-winning” and he compares it to “wildly successful” Chipotle because they use fresh ingredients, have an open kitchen and the dishes are made to order….LOL, that describes about 1/2 the restaurants in America, most of whose CEOs don’t resign, publicly trash the company’s business model and whose same store sales aren’t dropping rapidly in just a few months.
I’ll add more to this blog post like charts, but I wanted to write this fast so you can learn in real-time as this likely drops to $3ish or even less once people realize the misinformation here.
Be sure to follow me on Twitter as well.