Spending huge on advertising was a big bet by Gardenburger.
Based on the quality of management and the quality of the product, investors bet with them (including the firm that gave them $15M in a private placement). At this point, all signs are that the bet is paying off, with the evidence being the 103% increase in sales including major sales increases after the big advertising push was over. It is true that GBUR may well have to go to the well again for funds and it is true that capital is generally harder to get today. However it is also true that GBUR had no problem getting that $15M and is now a much stronger company. At the same time, the company should be generating substantial profits, beginning in Q4. Q3, which had a tiny profit, came in just where the company predicted it would. As for the future, to quote Adams Harkness analyst Laura Huskins, "They'll be very profitable next year if they continue at these rates." I also think GBUR will become an attractive takeover candidate.
That is not to say there is no risk in the stock. It is a small cap. As you pointed out, Worthington will have a new non-soy product and I have no idea if that will pose a threat but I think Gardenburger is so well positioned that it won't. Still, if the Hard Rock thing tastes better, that could be a problem. And, as you have also implied, management has yet to show it can make a meaningful profit, although it is certainly on track to meeting its goals. I am long GBUR. |
