Noble Roman’s Inc (OTCMKTS:NROM) is a name that generally doesn’t get much interest on the OTC Markets. For much of this year, shares have been on a downtrend, selling off on relatively light volume. But now things are changing. Shares are climbing on heavy volume after the company opened its first non-traditional franchise restaurant inside a Wal-Mart in Myrtle Beach, South Carolina on June 18, 2016. Add in favorable coverage from the blog Seeking Alpha and things looking to be changing for Noble Roman’s. The latest Seeking Alpha article said:
WMT is also welcoming Noble Roman’s first franchise restaurant inside a Wal-Mart store. If this one goes well, it is likely they will roll out Noble Roman’s at additional Wal-Mart locations. Noble Roman’s is worth at least $1.50 per share to a potential buyer, two and a half times today’s stock price, due to its strong cash flow generation.
Noble Roman’s sells and services franchises and licenses for non-traditional foodservice operations under the trade names “Noble Roman’s Pizza,” “Noble Roman’s Take-n-Bake,” and “Tuscano’s Italian Style Subs.” The company has awarded franchise and/or license agreements in all 50 states plus Washington, D.C., Puerto Rico, the Bahamas, Italy, Canada and the Dominican Republic.
The new Wal-Mart location is located in a brand-designated area opening to the inside of the Wal-Mart, and contains inside seating for approximately 72 customers. The restaurant is a co-brand whereby Noble Roman’s Pizza shares the facility with Auntie Ann’s and Rita’s Italian Ice. The restaurant is open daily from 7:00 a.m. to midnight. The Noble Roman’s Pizza in this facility serves a variety of breakfast items including its breakfast burrito and breakfast sandwiches, individual size pizzas, medium and large pizzas topped to order, its famous breadsticks with spicy cheese dip, baked sandwiches, pasta and more. CEO Scott Mobley said:
“We are thrilled with this new location, and are encouraged by the strong opening sales over the weekend. We look forward to the opportunity to open additional such locations.”
Last month, Noble Roman’s announced that it had signed license agreements for 239 grocery locations to carry the company’s deli take-n-bake program and opened 93 of them compared to signing 106 and opening 82 during the comparable period in 2015. The company also sold six new non-traditional franchise/license agreements and opened eight thus far this year compared to selling two and opening four in the comparable period in 2015.
In the first quarter, Noble Roman’s reported total revenue of $1.8 million for both the first quarter 2016 and 2015. Net income was $350,000, or $.02 per share, compared to $347,000, or $.02 per share. Net income was negatively affected by the $37,000 loss on a restaurant that was discontinued. Operating margin was 37.2% in the first quarter of 2016 compared to 37.0%.
In looking at the company’s balance sheet, current assets were $4.1 million and current liabilities were $3.0 million as of March 31, 2016 compared to total current assets of $4.3 million and current liabilities of $1.4 million as of March 31, 2015. The majority of the company’s outstanding debt is due in the first quarter of 2017, therefore it was reclassified from long-term debt at December 31, 2015 to short-term debt as of March 31, 2016. Total bank debt was $2.4 million as of March 31, 2016 compared to $2.9 million as of March 31, 2015. Total stockholders’ equity as of March 31, 2016 was $15.2 million compared to $14.2 million as of March 31, 2015.
Currently trading with a market cap of $15 million, the deal with Wal-Mart is a big one for Noble Roman’s which now makes NROM a growth stock. In looking at NROM from a value perspective, shares are trading at 25x earnings, 1.8x sales, and just 0.9x book value. With an operating margin over 37%, we see the potential to improve profitability if the company can bring down overhead costs. As another Seeking Alpha author said:
I intend to hold my shares, and recommend purchase to others. The value here is compelling, and management is experienced enough with a substantial enough stake, to at least hold the Company together, if not realize its potential. As described above, I am very disturbed with the management compensation arrangements, as well as the apparent lack of independence by Directors. I am voting my shares accordingly (as described above) and I suggest other shareholders do the same. There are no “independent” Directors here, no matter what the Proxy material says, so we have to protect our own interest.
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Disclosure: We have no position in NROM and have not been compensated for this article.