Should TurboChef Be on the Menu?

And so here we have TurboChef (Nasdaq: OVEN  ) , a small company (about $300 million in market cap) that nevertheless attracts enough attention to trade about 3% of its float every day and has an outsized short position. Certainly then, one way or another, a lot of people care about this stock.

Investors reacted to the fourth-quarter earnings from this high-speed oven maker with about as much enthusiasm as if they had found a bug in their salad. Sales fell about 75% from last year (though the year-ago period was boosted by unusually large orders), operating income reversed to a loss, and the company posted a bigger-than-expected net loss. Adding injury to insult, TurboChef produced sizable net negative free cash flow for the year (about $0.83 per share).

Unfortunately, it's just about impossible to say when, or if, the cavalry is going to come riding in to boost sales. While non-Subway revenues did grow considerably (Subway is the major customer here) -- tripling, in fact -- I'm not sure how many of today's shareholders have the patience to watch the company build its business piece by piece. They want big action, like an order from Starbucks (Nasdaq: SBUX  ) , which is giving the ovens a trial now, or McDonald's (NYSE: MCD  ) or some other large national chain.

Well, it takes a lot of time for a customer like that to evaluate a new product rollout that would have a big impact on the restaurant's performance if the ovens weren't up to snuff. What's more, companies like Middleby (Nasdaq: MIDD  ) , Dover (NYSE: DOV  ) , IllinoisTool Works (NYSE: ITW  ) , and the like aren't going to just roll over and say, "Take our customers, please."

My bigger concern, though, is the hope and hype about the potential in the residential market. It's true that there's a big market for high-end ovens, but I'm not sure TurboChef is well-positioned for that market. I'm an avid amateur chef myself and probably squarely in the sights of TurboChef's age/income demographic. But I cook because I like it, and I for one just wouldn't have any use for a hyper-quick oven. And as for those who do like to minimize their time in the kitchen, I'm not sure a multi-thousand-dollar oven is going to sway them away from the takeout windows or microwave meal aisles.

I really don't question the technology here and I do think there's a definite market for these ovens in the food prep sector (though maybe not so much at Starbucks). In the meantime, though, this is going to be a really volatile stock, and I'm not sure I'd want to cast my lot with a management team that doesn't have a person with experience in this industry in any of the top spots (chairman, CEO, chief financial officer, or chief operating officer).

For more Foolish food for thought:

Middlebyis a Motley Fool Hidden Gems recommendation. Join Tom Gardner as he looks for small companies with the potential for big gains.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

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