Archive for July, 2015
An open letter to CVSL’s John Rochon was published yesterday (click here to read it) after the market opened and it will be interesting to see how the company responds. We believe that CVSL management should take advantage of how low the stock has fallen and it is hard to conceive of a way to create better long-term value than by offering a program for their sales reps to become owners (shareholders) of CVSL. Though the Dutch Auction Tender Offer approach mentioned would give us the quickest boost to the $2 range (likely price range given the current trading price), we believe that investing in the sales force through a non-dilutive program to help as many reps as possible become “owners” of the company through stock ownership would be a better long-term investment. We hope that Longaberger, Agel, Kleeneze, Project at Home, Tomboy Tools and other company sales people will join with us in pushing for some kind of stock purchase program that would be available to all sales reps. The sooner this happens, the better because we believe the stock is going to move significantly higher over the remainder of this year when investors see the larger divisions (Longaberger and Agel) start to turn a corner and the opportunity to buy CVSL shares in the $1.50 range may not be around very long.
Speaking of Longaberger, all reports from the home front suggest that the Longaberger convention was a hit with sales reps, old and new. Longaberger CEO John Rochon Jr. indicated when pressed that Longaberger sales are trending better than expected and more importantly, he indicated that the number of new sales reps has grown “exponentially” over the last 60 days. This is a very big deal (particularly coming on the heels of such a long fall in those numbers) because big revenue gains usually come soon after we start to see growth in the number of new sales reps. This is the strongest indicator we have received yet that tells us the Longaberger business has turned a corner and we will begin to see material growth in Q3. We strongly encourage participants in the Groove community to buy as many shares as possible while the stock is still down this low.
For Longaberger, Agel, Kleeneze etc. sales reps, the time is now to let your management team know that you want to own a stake in the company and given that it will take a little time to get one set up, you may want to open an Etrade, Ameritrade, Fidelity, etc. brokerage account and just eat the $8 commission to go ahead and buy CVSL shares. If it takes a few months to get an employee stock purchase program in place, CVSL could be trading at a much higher level by then.
Rave Restaurant Group’s stock continues to swoon in line with the other small cap restaurant stocks in its peer group. Across the board we have seen these stocks fall 20-25 percent from their recent highs, despite posting strong results and all indicators pointing to very strong growth in new stores and good year over year comps at existing locations. Yesterday Rave’s Pie Five division announced another significant development deal for new locations in Branson and Springfield Missouri, Tucson, Arizona and Albuquerque, New Mexico. Here is a link to the full press release (click here).
We continue to believe that fast casual pizza is going to be a big deal and eventually have a footprint very similar to the fast casual Tex-mex chains, which means there are many years of growth ahead for the players that execute well. We also think that there is room for at least two or three chains to stake out a claim in this space and early indications are that Pie Five is going to be one of the big winners. Short sellers have been targeting RAVE for a few months now and they appear to be having their way with the stock as the broader market forces have been working to their advantage. While this broader market and sector weakness may allow for some near term downside, we believe that patient investors who can buy shares when the shorts are pushing it lower (like this week) will benefit tremendously when the market storms pass.
Great article out yesterday (click here to read) by one of our own pointing out how ridiculous it is for CVSL stock to trade in its current range. One thing to note – the “ridiculous” .2x revenue multiple that was calculated in the article uses a pretty conservative approach because it does not include the revenue from recently acquired Kleeneze. If Kleeneze’s revenue from the prior 12 months were included, CVSL’s cash/debt adjusted market cap would have been .1x trailing twelve months revenue. So even with yesterday’s move off the bottom, CVSL remains dirt cheap and arguably still below .2x trailing revenue despite the fact that CVSL is growing much faster than the other companies in the space and despite the fact that it has a much stronger balance sheet than the comparables used, including enough cash to pay off its debt, repurchase the entire public float and still have $1 million in the bank.
Groove investors who have yet to “back up the truck” for the full portion of CVSL shares they want in their portfolio should do so ASAP. The CVSL article was published by Seeking Alpha in the morning after the email newsletters were distributed, so today will be the first day that many are exposed to the CVSL story for the first time. Thus, the article will be much more widely distributed today and other investors may be drawn into the CVSL story just by noticing that it was one of the top 5 gainers on the NYSE Market yesterday. Additionally, today starts the annual Bee convention for CVSL’s largest division (Longaberger) and with the company’s increasing focus on helping its sales reps become “owners” through share purchases may result in several thousand other buyers out there competing for shares. CVSL shares remain dirt cheap and we believe that the time to buy them is as soon as you can.
A big welcome to all of our new friends who are entrepreneurs working with Longaberger and/or attending the Bee today! The Groove is proud to be investing in the iconic Longaberger brand through our ownership of CVSL shares. We hope you have a great visit this week!