What Does This Insider Selling Mean For Your Restaurant Investment?
Mike is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Bloomin’ Brands, Inc. (NASDAQ: BLMN) is a conglomerate restaurant company operating a number of chain restaurants. The company’s brands include Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Roy’s. Bloomin’ IPO'd in August of 2012 with an initial price of $11 per share. The company initially offered 16 million shares, with 119 million shares total outstanding. Bloomin’ announced a secondary stock offering of 19 million shares at the end of May, with another 2.85 million available for sale by insiders. Bloomin’ insiders have recently been selling large amounts of the stock. This increased liquidity, combined with the heavy insider selling, could make Bloomin’ a potential short candidate.
Bloomin’ is still growing its business. The company announced that total revenue for the first quarter of 2013 rose by 3.5% to $1.1 billion, with the revenue increase due primarily to the opening of 44 new restaurants. Adjusted net income increased to $63.2 million, versus $59.6 million for the same quarter last year. The company now has a market cap of $2.84 billion.
Insiders have been dumping their stock on the market. Over the past three months, there have been 14 insider sales with a net 70.52 million shares sold, out of a total float of 108 million shares. The IPO lockup period ended in February, and so some insider selling is to be expected. However, the massive amount of shares being sold should give investors pause to consider how additional liquidity in the market might impact Bloomin’s stock price. As of May 31, there was a short interest of 2.7 million shares, representing a short float of 2.89% and a short ratio of 4.23. The stock has an average daily volume of 741,000.
Technically, Bloomin’ is trading in an upward channel since November 2012, and is currently priced above its 50-day SMA around $23.50. The stock is up a spectacular 49% year to date. Since the beginning of June, the price action has flattened out on declining volume. Still, there has been no clear break out of the upward channel yet.
What Are Others Doing?
Investors should also examine some of Bloomin’s competitors to get a better grasp on the sector as a whole. Darden Restaurants, Inc. (NYSE: DRI) is a large restaurant company with a market cap of over $7 billion, a current P/E ratio of 15.74, and a dividend yield of 3.83%. Darden operates the well-known chains Olive Garden, Red Lobster and Longhorn Steakhouse, as well as other brands. At the end of March, Darden reported 3rd quarter sales of $2.26 billion, an increase of 4.6% from the same quarter last year. Darden’s share price is up 22.86% year to date, but may be facing resistance around $54.00 and is trading about 12% below its 52 week high.
Another large restaurant chain is Chipotle Mexican Grill (NYSE: CMG). Chipotle has been the target of short interest from some well-known hedge fund managers, including Jeff Gundlach and David Einhorn. Gundlach stated that although he liked the chain’s products, there was no such thing as a gourmet burrito. Despite these recommendations, Chipotle’s stock is trading at the lofty price of around $366. Although it took a dive in late October, falling down to around $230 a share, it has recovered well and is up over 22% year to date. Chipotle has a high P/E ratio of around 40. There are currently around 2.8 million shares being shorted. To this point, the company has defied the short naysayers and continues to show strong revenue growth.
The facts indicate that Bloomin’s stock price could be in for a correction after having performed well since its IPO. Insiders are selling heavily, along with an additional secondary stock offering that may flood the market. A lot of the insider selling is due to the end of the lock up period, but with such high volume, it is uncertain how the market can soak up this additional liquidity. Technically, however, the stock is not showing any weakness as of yet. The price is still within a well-defined channel, and has not broken below the bottom support. Investors should wait for a break below the lower support on substantial volume before thinking about shorting the stock.
Chipotle's stock has been on an absolute tear since the company went public in 2006. Unfortunately, 2012 hasn’t been kind to Chipotle’s stock, as investors question whether its growth has come to an end. Fool analyst Jason Moser’s premium research report analyzes the burrito maker’s situation and answers the question investors are asking: Can Chipotle still grow? If you own or are considering owning shares in Chipotle, you’ll want to click here now and get started!
Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill and Darden Restaurants. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!