Everyone seems puzzled as to the reason that the stock has dropped so low. The reasons are simple:
1)Since I started watching the stock a little over a year ago, the company has always promised that they would produce positive earnings 'next quarter or the one after that'. But, they never do. This wouldn't be so bad if the reasons that they don't follow through were beyond their control, but they are well within their control. The main reason is that they keeping expanding (see note #2). The fact that they cannot seem to predict the effect of this growth on cash-flow and earnings results in the management having no credibility.
2) One of the reasons that they do not produce positive earnings is that they are continually expanding. In theory this sounds like a positive, but they do not seem to have a plan for the expansion. First, they cannot seem to predict the earnings/cash-flow (see point #1), and second they do not seem to have any strategy to their expansion (Hamburger Hamlet being a good case-in-point - they seem more interested in empire building than in an efficient company). This lack of predictability makes for a low stock price.
3) Poor/top-heavy management. First, there are the stories about the nepotism. Second, as someone said earlier, there are way too many VP's given the size of the company.
4) Dilution. In order to fund their expansion they are having to issue new stock and/or borrow money.
Some other comments are that are appropriate are that companies like these normally make most of their money on franchises, (See BOST, or McDonalds or ...), but KKRO doesn't franchise. The primary advantage to franchising is that it allows a company to expand without having to expend capital or increase debt. Until KKRO either stops expanding or starts franchising it will continue to lose money and the stock will continue to perform poorly.
Clark
PS I like the food, hate the company/stock and am neither long nor short the stock. |
