Let's hear it for the Fool community! Earlier this year, one helpful Fool pointed out to me a tiny company by the name of Ark Restaurants (NASDAQ:ARKR) as having the makings of a Hidden Gem. I wasn't so sure at the time, but in retrospect, it sure does look like he was right. Over the past year, Ark has increased in price by well over 100%, and is up about 50% since I first heard of it in August. (Isn't hindsight great?)
The company, a micro-cap operator of restaurants in a handful of far-flung states across the continental U.S., reported its full-year 2004 earnings yesterday. They were good enough to shoot the stock almost 10% higher on a pretty bad day for the markets in general.
Ark's revenues increased 12.6% over fiscal 2003, this despite the company selling off or otherwise disposing of about 10% of its locations this year. Meanwhile, net earnings rose about 101% and earnings per diluted share, 87%. Pretty impressive.
As for the difference between net profits and diluted per-share profits, that's the only really bad news to this story. There's some pretty heavy dilution going on here -- about 7% year on year.
Share dilution aside, investors in the company should be happy to hear that the revenues and earnings increases were not boosted by some kind of runaway expansion drive. Rather, the good news seems to be almost entirely organic, driven by a 12.3% increase in same-store sales. That's better than the 9% quarterly increase that fellow Fool Nathan Slaughter reported seeing at Darden Restaurants (NYSE:DRI) a couple weeks back, better even than the 11% quarterly increase that Alyce Lomax saw at Starbucks (NASDAQ:SBUX) at the beginning of this month, and miles ahead of the sub-1% increases posted by steakhouses Outback (NYSE:OSI) and Lone Star (NASDAQ:STAR) last month. Meanwhile, famous names such as Applebee's (NASDAQ:APPB) and Ruby Tuesday (NYSE:RI) have actually posted decreases in their same-store sales in recent months.
Consider also that Ark is trading at a significant discount to its larger, better-known, and better-covered peers (no analyst covers Ark). It sports a trailing P/E of just 17, which is cheaper than the cheapest of the above-mentioned competitors. And on an enterprise value-to-free cash flow basis, Ark is even cheaper, at just 11. Put it all together and this one has serious Hidden Gem potential.
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Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.
