A much-maligned ASX stock has rocketed 96% over the last three months, but one fund manager reckons there’s plenty more where that came from.
Retail Food Group Ltd (ASX: RFG) is the franchisor for well-known brands like Donut King, Michel’s Patisserie and Gloria Jeans.
Six years ago, the share price was flying high around the $7 mark. But then it ran into legal and regulatory problems from consumer watchdog Australian Competition and Consumer Commission over its treatment of some franchisees.
By March 2020, when stocks crashed during the first wave of COVID-19, Retail Food shares were virtually worthless, going for around 3 cents.
It was still sitting at 5 cents last November. But since then it has pretty much doubled, to close Tuesday at 9.6 cents.
‘Positive earnings outlook’ looking good for stock price
Glenmore Asset portfolio manager Robert Gregory, who held the stock last year in anticipation of this boom, knows exactly what happened.
“In our view, this was driven by growing investor awareness of Retail Food Group’s cheap valuation, following the announcement on 23 December 2022, that the ACCC investigation into misconduct by previous RFG management had been finalised,” he said in a memo to clients.
The Retail Food share price remarkably gained 21.2% over December, then another 31.3% in January.
Despite its meteoric rise, Gregory is holding on for further gains.
“Whilst the stock is no longer nearly as cheap as it was before the ACCC announcement, we met with RFG management during the month, and continue to see a positive earnings outlook for the business.”
Gregory’s optimistic forecast is based on Retail Food’s business plans like overseas expansion of Gloria Jeans and growing the number of franchisees for the Donut King, Crust and Gloria Jeans drive-through brands in particular.
“RFG currently has ~700 franchisees,” he said.
“However, with the ACCC investigation now behind it, we believe the company is well positioned to grow this key metric which should be supportive for earnings going forward.”
RFG is headquartered on the Gold Coast and also runs franchise networks for Crust Pizza, Brumby’s Bakeries and Pizza Capers.
The post This ASX share’s doubled in 3 months. Expert says it’s not too late to buy! appeared first on The Motley Fool Australia.
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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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