Michael Burry Picked a Winner With GEN Restaurant Group

GEN Restaurant Group NASDAQ: GENK hit the Marketbeat.com radar when insider buying spiked in Q1. As they say, one thing leads to another, such as discovering the company is (at least was) a pick by Scion Asset Management in Q4. Scion is owned and operated by well-known investor Michael Burry, so it is a notable purchase. Scion’s Q4 13F shows 154,142 shares, or about 4% of the float and 0.4% of the total shares outstanding. There are no dates on the 13-F to know what price he paid, but we can assume it was less than $11.50, and minimum gains are near 20% and likely to grow.

GEN Restaurant Group Turns Corner; Analysts Yawn

GEN Restaurant Group had a mixed quarter in FQ4, but one result offsets the other due to the cause and outlook for future results. The company reported $45.1 million in net revenue for a gain of 10.5% that outpaced the Marketbeat.com consensus by 300 basis points. The strength was caused by accelerated store openings offset by a 1.7% decline in comps. The decline in comps is not great but less than expected and offset by store growth. The decline in comp is due to economic conditions expected to improve over the next twelve months. 

The margin is where the report is weakest, but GAAP losses and weaker-than-expected adjusted earnings are due primarily to preopening expenses. Preopening expenses will remain a headwind to the margin for the foreseeable future, but two things offset the issue. The first is that store count is growing and providing a lever for earnings. 

The second is the company’s lean toward efficiency and new unit operating metrics, which are among the best in the industry, including significant improvement in restaurant-level margin. The bad news is that GAAP earnings are negative, $0.01, and a nickel short of expectation; the good news is that the company is building leverage for the future and is in excellent financial health. The balance sheet highlights include nearly tripling cash, assets growing 38%, relatively flat liabilities, and equity of $36,000,000, up from negative $6,000 last year.

Insider Buying In GEN Restaurant Group Coincides With Results

GEN Restaurant Group insiders started buying the stock heavily following the Q4 release. The CEO and a 10% shareholder made the first two purchases on the release day. Subsequent purchases were made in the following days by the other C-suite execs and major shareholders. Investors who purchased shares by the end of that week are up more than 50% and on track to double their money. 

Analysts may provide a headwind to the market. The four analysis tracked by Marketbeat.com peg the stock at a firm Buy but trimmed their price targets following the release. The new targets assume the stock is overvalued at the current levels but may not stand long. The company’s next earnings release is in six weeks, and the bar is set low. The analysts expect sequential and YOY growth but have been lowering their targets. The consensus of $48.05 assumes growth will slow to 6.5% compared to the 20% increase in store count last year and expectations for additional store openings this year. 

GEN Restaurant Group Spikes, Then Hits Resistance

GEN Restaurant Group hit bottom ahead of its Q4 release and has spiked since, but the melt-up may already be over. The market advanced another 15% to open the 3rd week of gains but failed to hold the move.  The market now shows resistance near a critical target that provided support in the past. If the market can’t get above that level soon, it will unlikely advance until another catalyst emerges. In this scenario, the restaurant stock could be rangebound until the Q1 release and afterward if the results do not align with expectations.