Ignite Restaurant Group can Offer 'Resurrection Profits'
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All apologies to the spiritual folks. “Resurrection profits” (according to the dictionary of Kevin) are the profits generated by stocks from an entity that took a big hit, turned things around and thus created wealth for the astute that jumped in when things were the darkest knowing full well that the dawn was coming. Ignite Restaurant Group (NASDAQ: IRG) is looking to be a resurrection profits opportunity after taking a recent hit. This is their story. Ok, not their story, per se, but an examination of recent and current events with an argument to buy.
IRG owns the Joe’s Crab Shack restaurant chain as well as the Brick House Tavern + Tap chain. Both are successful and well run chains with room to grow. Joe’s Crab shack is currently in less than 30 states with about 120 units, while the Brick House is a considerably smaller chain. IRG is owned by J. H. Whitney Capital Partners. Room to grow means room to increase profits. IRG went public in May of 2012 and is therefore a new player in the public stock game. This may have some bearing on recent events.
On a very basic level, IRG has encountered some accounting errors. This could be due to a number of factors, but it is apparent that certain aspects of the accounting errors prevent it from being catastrophic or even causing a long-term problem.
The situation is rather simple. Accounting errors stemming from the timing of leases for the restaurants dating back six years has caused the need for a restatement. That right there was enough to scare jittery investors (which there are a lot of in this market) and drop the stock 20%. What does this mean? IRG presents an easy chance for investors who like the short game to make 20% or more. Investors playing the long game have the opportunity for a great value.
It is important to remember that this accounting restatement will not affect IRG’s adjusted EBITDA, revenues, cash flows, restaurant-level profit margins or comparable restaurant sales, the company said. In other words, the errors are non-cash related. Investors should understand what an important distinction this is.
According to Raymond Blanchette III, president and CEO of Ignite Restaurant Group, “We are thoroughly committed to providing Ignite shareholders with accurate disclosure and are moving as expeditiously as possible with full resources to quickly identify and correct these issues.” The IRG CEO went to state that the core investment thesis is unchanged and operations remain strong. In other words, IRG’s stock dropped significantly over something that will not affect the bottom line or future growth. This is a real opportunity for the savvy investor.
The situation was reported on July 18 of 2012. The wise investor realizes that IRG was no different on the 18th, when the news started having its effect, than it was the previous day. It is still the same successful and fundamentally sound company and it suffered from a simple and non-fundamental blemish creating a great investment opportunity for the level-headed and analytical profit-seeker.
The time to move is right now, as many stock analysts are rating IRG as a buy or strong-buy. As the story gets out, there will likely be a rush to IRG once it’s understood how premature and foolish the exit was. Some experts are targeting the price to reach $22.00. This is a prediction of a more than 25% increase.
Expect to see IRG turning in “resurrection profits” to smart investors, quite possibly before the calendar year is over. No matter whether the short or long view is preferred, IRG is a solid move awaiting the investor that sees true potential.
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