BAB, Inc. (symbol BABB) is a company about which I have written repeatedly on this site. It is now time to sell this stock. BAB last traded at 72 cents which is 28 percent higher than where it was when I recommended purchase a year ago. During that year, BAB also paid 8 cents in dividends for another 14% return. Right now, there is too much uncertainty in the stock to hold it any longer. But we need to discuss this, since there are strange things afoot at BAB.
Let's start with the reason to sell. BAB is a franchisor of restaurants. Its two main chains are Big Apple Bagel and My Favorite Muffin. It also licenses some products such as coffee to others. The big promise of the company has been its new concept which is to be rolled out this year. That concept, called Sweet Duets, is a combination of a frozen yoghurt and a muffin store. The idea is that the heavy morning business at the muffin stand will be combined with the afternoon and evening sales of the frozen treats. Since the management of BAB has experience in the frozen yoghurt space, they should be able to create an interesting brand. The problem, however, is that prospects do not seem bright at the moment.
The old concepts are not doing that well. During the quarter ending February 28th of 2013, BABB lost 0.9 cents per share. That is not a huge loss, but for a company that survives on franchise revenues, it is a major problem. Revenues fell in all segments of BAB's business as well.
With the existing businesses declining, the hope has to be in the success of Sweet Duets. Here, the news is also not very good. The balance sheet as of the end of last quarter shows deferred franchise fee revenue of only $60,000. That should indicate that BAB had sold only at most four franchise locations for the new chain as of the end of February. That is not nearly enough to reverse the declining fortunes of the company.
In short, BAB has changed from a stodgy but profitable restaurant chain into one that seems headed for continuing troubles. It is time to sell.
Now for the strange things I mentioned earlier. BAB stock has been trading as if something big is about to happen. Volume is way up from where it was just a few months ago. There are steady purchases of large amounts of stock that push the price higher. This could be an indicator that the new concept is actually about to burst successfully on the scene even though that success is not reflected in the numbers from the end of the last quarter. It could also mean that someone is accumulating a large position in the stock of this tiny company. In my view, it does not matter why the trading is pushing the stock higher. This trading provides a good chance to exit from the stock.
DISCLOSURE: I have no interest in BAB at this point. I sold everything over the last few weeks.
Let's start with the reason to sell. BAB is a franchisor of restaurants. Its two main chains are Big Apple Bagel and My Favorite Muffin. It also licenses some products such as coffee to others. The big promise of the company has been its new concept which is to be rolled out this year. That concept, called Sweet Duets, is a combination of a frozen yoghurt and a muffin store. The idea is that the heavy morning business at the muffin stand will be combined with the afternoon and evening sales of the frozen treats. Since the management of BAB has experience in the frozen yoghurt space, they should be able to create an interesting brand. The problem, however, is that prospects do not seem bright at the moment.
The old concepts are not doing that well. During the quarter ending February 28th of 2013, BABB lost 0.9 cents per share. That is not a huge loss, but for a company that survives on franchise revenues, it is a major problem. Revenues fell in all segments of BAB's business as well.
With the existing businesses declining, the hope has to be in the success of Sweet Duets. Here, the news is also not very good. The balance sheet as of the end of last quarter shows deferred franchise fee revenue of only $60,000. That should indicate that BAB had sold only at most four franchise locations for the new chain as of the end of February. That is not nearly enough to reverse the declining fortunes of the company.
In short, BAB has changed from a stodgy but profitable restaurant chain into one that seems headed for continuing troubles. It is time to sell.
Now for the strange things I mentioned earlier. BAB stock has been trading as if something big is about to happen. Volume is way up from where it was just a few months ago. There are steady purchases of large amounts of stock that push the price higher. This could be an indicator that the new concept is actually about to burst successfully on the scene even though that success is not reflected in the numbers from the end of the last quarter. It could also mean that someone is accumulating a large position in the stock of this tiny company. In my view, it does not matter why the trading is pushing the stock higher. This trading provides a good chance to exit from the stock.
DISCLOSURE: I have no interest in BAB at this point. I sold everything over the last few weeks.
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