BAB (BABB): This Nano-Cap Franchisor of “Big Apple Bagel” Stores is the Smallest Stock I Know of That’s a Consistent Free Cash Flow Generator
This might turn out to be a shorter initial interest write-up than some, because there isn’t as much to talk about with this company. It’s pretty simple. The company is BAB (BABB). The “BAB” stands for Big Apple Bagel. This is the entity that franchises the actual stores (there are no company owned stores). Big Apple Bagel is a chain of bagel stores – mostly in the Midwest – that compete (generally unfavorably) with companies like Einstein Bros Bagels, Panera Bread, and Dunkin’ Donuts. The company owns certain other intellectual properties like: a brand of coffee (Brewster’s) served in its stores (which Andrew tells me is terrible, I haven’t had a chance to taste the coffee myself), “My Favorite Muffin” (a muffin concept similar to Big Apple Bagel), etc. But, the cash flows seem to come mainly from royalties paid to BABB by franchisees in proportion to the sales they make. Like other franchised businesses, the company also maintains a marketing fund that is paid for by franchisee contributions.
Why am I writing about this business? Because I think it may be literally the smallest stock I’m aware of that is a legitimate and decent business. The market cap is closer to $4 million than $5 million. Insiders own some stock. So, the float is even less. And the investment opportunity is limited no matter how willing you are to accumulate shares because there is a poison pill. No one can acquire more than 15% of the company’s shares no matter how patient they are. So, as of the time I’m writing this, that would mean that the biggest potential investment any outsider could make in this company would be about $650,000. Realistically, it’s unlikely any fund or outside investor could manage to put much more than half a million dollars into this stock. And it’s entirely possible management would not be happy to see even that much being put into this stock (since that’d be more than 10% of the share count).
So, this is a very, very limited investment opportunity. And yet: it is a real investment opportunity. This is a real business. You can travel the country eating at each of these franchised locations. You can call up the owners of the franchised stores and talk with them about the business. You can read 10-Ks on this company going back a couple decades. The company is an “over-the-counter” stock. But, it isn’t dark. It files with the SEC. That’s very unusual for a company with a market cap of less than $5 million. Public company costs are significant. This company would be making more money if it was private. Management costs are also significant here too. The CEO, general counsel, and CFO were paid: $250,000, $175,000, and $120,000 (respectively) last year. That adds up to $550,000.
They own 33% of the stock. I mention this because if we compare the value of the stock they own to the value of the salaries they draw – it’s true …Read more