Stocks vs. Companies
I had an absolutely amazing double cheeseburger recently in Fort Lauderdale airport at BurgerFi. I had never been to the quick-serve restaurant before, but it rivaled national favorites Shake Shack or Five Guys, in my opinion.
It was so good, in fact, that I got to thinking about franchise opportunities and the financials tied to the company. A quick Google search showed me that much to my surprise it already is a public company, with a stock ticker symbol “BFI.” This is where the good news ends, though.
You see, the stock went public a few years ago, hitting $17.70 or so as an all-time high in late 2020- and currently trades about $1.70. My clients collectively could fairly easily buy the entire company, as the market capitalization of the firm is under $38 million. Earnings are minus $7 per share annually. I assume their burger recipe has not changed since their all-time stock highs, and yet I would be down almost 90% had I invested then and held to now (they do offer other menu items, but I am simplifying here).
Needless to say, I will not be an investor in the company. But I bring this anecdote up to illustrate the substantial difference between a stock and a company. Like some of the entrepreneurs in Shark Tank have said, “I’ll be a customer, but I can’t invest…”. What are the problems at BurgerFi, Inc.? I have no idea. My guess is they probably have too much debt, are poorly run in some other way, or the competition being as fierce as it is in “burgerland”, do not sell enough volume to overcome their substantial fixed costs. Perhaps their prices are too high or their restaurants are too far apart to streamline distribution effectively. I had my burger in an airport terminal- maybe reduced flying during Covid hurt them if that is a focus-area. I really do not know what it is, but I know I would feel more comfortable investing in Shake Shack and their $2.47 billion market-cap company than “BFI,” even though the end products are, to me, quite comparable.
In fact, I would always rather invest in a bad company if I think it might act like a good stock - probably not a permanent holding, but that’s ok - than invest in a good company when I can clearly see the stock looks dead in the water. I remember my dad railing against Amazon’s stock in the early 2000’s. He did not believe in the business model of selling books online, and of course they did not succeed substantially until years later when they pivoted and broadened their offerings. I made the point to him that he can dislike the company, and even be correct about its prospects, but the stock “AMZN” could still act well in the interim.
I even made this mistake myself years ago (2009-2010) in the same fast-food sector as BurgerFi. I bought Wendy’s/Arby’s(“WEN”)for my own portfolio, thinking I am a fan of both restaurants, and eventually the stock market would agree with my take. At the time the stock was in the doldrums and did not have any momentum going for it- there was no real thesis or catalyst to buy the stock, I just figured eventually the price would increase. I watched the stock wallow in the $4 - $5 range for many quarters before I got impatient and sold the position. The stock did not crest $6 until early 2013 - I would have had to wait 4 or 5 years for the stock price to move appreciably. I liked the products - I did far more research than today on “BFI,” and the companies seemed to be run well enough - and yet the stock was dead money all that time.
It is great if we can find a company we believe in or whose mission we appreciate, but when buying a stock or basket of stocks we really just need a position that increases in value while we hold it - that is the bottom line, and what we need to keep in mind, always.
I hope this post was instructive for some of you - and with that, I’m off to eat a salad. :-)