Ark Restaurants Being Bought Out
Over the past couple weeks I have been researching and discarding dozens of companies to write articles on and potentially buy into. Of those dozens of companies, I decided to do further research on seven of the companies. I ended up valuing three of the companies. Of those three I ended up doing in depth research on two of the companies reading 5-10 years of annual reports and doing various other research so far. One of the companies I am still doing research on and plan to write an article about. The other was Ark Restaurants mentioned in the Readers Investment Ideas and Analysis Page above by reader DTEJD1997.
After discarding a bunch of other companies I remembered ARK being mentioned on the blog after I found them in a screen I did, found information that looked promising and started doing my normal in depth research on them. I actually ended up starting to write an article about them, as I really liked their operations and management, and found them to be undervalued currently. Valuing the business at 8X EBIT, adding cash, cash equivalents, short term investments, and $1 per share of NOL’s, and subtracting almost $1 per share in debt got me to a value of $26.91 per share which is the estimate I use for its intrinsic value. This is the base estimate of value I was basing my article around. So overall I thought very highly of the overall business as a potential investment.
I decided to scrap the article for now and wait to write the article and potentially buy into the company until the share price dropped though because I found ARK to be overvalued by my worst case scenario which estimated what I think the company would be worth if it dropped back down to its profitability levels from 2009-2011 when the company was struggling more. Using the same basis as above, I found at 8X EBIT that ARK would be worth $10.13 in that situation, which is actually 20% higher than the low it reached during 2009-2011, as its EBIT % was only 2.23% on average over those three years. In comparison this year ARK’s EBIT % jumped back up to pre-recession levels at 7.2% in 2012.
Got an email from DTEJD1997 this morning with this news that the company is potentially being bought out by Landry’s for $71 million or about $22 a share so it looks like I have missed out on this potential opportunity. Actually, I think that is a bit low and the buy price should probably be in the $23-$26 range for a truer intrinsic value but it is still a 22% premium to what the stock closed at yesterday.
Congratulations to DTEJD1997 on the find and hopefully the company can push for a little bit higher purchase price if they decide to sell. For now, I am off to keep researching another company I found but if you have any ideas you would like to share please feel free to post them in the Readers Investment Idea page above.