Was Barry Ritholtz Paid to Bash The Grilled Cheese Truck Inc?

This morning I came across this typical hit piece from a member of the Wall Street Elite, Barry Ritholtz.   In his poorly researched, hastily written “article,” Ritholtz held $GRLDThe Grilled Cheese Truck Inc – up as proof of irrational exuberance based mostly on a few slim data points:  the company has 4 grilled cheese food trucks* and a market cap in excess of $ 100MM.   Well allow me to retort, as I have actually taken the time to look into the numbers and make some more appropriate analogies.

One of my first introductions to investing was reading Peter Lynch’s classic test, “Beating the Street.”   In it, Lynch talks about the investing guide which has since been shortened by many others to simply: buy what you know.   You know you love to shop at the Gap – take a look at $GPS.   Everyone is wearing Nike shoes?  Maybe you should look into $NKE.   Well despite Ritholtz admitting that he likes a nice grilled cheese sandwich, his narrow Liberal Elite worldview seemed to miss the point that the world doesn’t revolve around Barry Ritholtz.   It’s not just that Ritholtz likes grilled cheese – EVERYONE likes grilled cheese.   Go ahead – take a survey of the people around you – if you don’t get a 90% approval rating amongst your friends and colleagues for grilled cheese, you need new friends and a new job.

There are roughly 316MM people in the United States.   Of course, not all of those 316MM can eat grilled cheese, but if you look at the histogram of Population by Age and Sex, you can see that the vast majority of the bell curve falls in the prime grilled-cheese-eating-age range of 2 years – 90 years.  Now we still have to haircut the TAM (that’s total addressable market for you followers who just want to read Ritholtz’s hit piece and short the stock without even thinking about the BIGGER PICTURE or doing any research at all) for issues like lactose intolerance and gluten allergies (more on this later).  Let’s just be incredibly conservative and say that there are 200MM potential grilled cheese eaters in the U.S. alone.

If each member of the TAM buys only one sandwich a year from the Grilled Cheese Truck Inc at an average cost of $6.50, that’s $1.3 billion – BILLION WITH A B –  in revenue – just in the United States – and assuming only one sandwich per year!!!

Ritholtz noted that $GRLD’s current price to sales ratio is a pretty juicy 25 – well even if you account for some multiple contraction, do some math to figure out what happens if $GRLD gets just TEN PERCENT of our ULTRA CONSERVATIVE estimate for TAM – they’d have 130 MM in annual sales in no time.   Slap a 5x multiple on that, and you get $650 MM – a fivefold gain from current prices.  Don’t forget that we’ve gone ultra-conservative on all of our estimates too:  imagine the operative leverage if GRLD can get those customers to come once a month instead of once a year!  The numbers are potentially staggering.

But this is only the beginning:  The Grilled Cheese Truck Inc is, as I noted above, clearly ignoring two big populations: the gluten-free, and the lactose-intolerant.   Proprietary anecdotal evidence suggests that both of those populations have large amounts of discretionary income that they’d be eager to spend on conveniently positioned artisanal grilled cheese sandwiches that met their dietary constraints.   This situation is ripe for an activist to come in and make the changes that need to be made:  perhaps some more experienced board members would have the wherewithal to get the menu on the right track.    I don’t want to start any rumors, but I heard from a close friend that Carl Icahn friggin’ LOVES grilled cheese….think about it.

I also know another big New York hedge fund manager who thinks that $GRLD may be able to create significant synergies by hedging out their milk and wheat exposure.  If you incorporate those efficiencies into your EV/EBITDA calculation, the numbers, well, let’s just say that I got an Excel error: the numbers were so big that I had to check if I’d actually set my currency to “Japanese Yen” by accident.

Still, Ritholtz, like most short selling bashers, wants to poison you with simple data points:  FOUR TRUCKS*.  Yes – $GRLD only has four trucks.  Guess what – Amazon ($AMZN) has ONE website…  Chipotle ($CMG) started out with ONE store.   Critics have said that both of those stocks were expensive since basically their first days of trading.  Pull up a long term chart of $AMZN or $CMG and see who’s  laughing now:  hint: it’s not the short sellers.

I mentioned $GRLD to a very well informed executive at a publicly traded company, and he responded with some brilliant insights, including some more data points.  I think it’s important to note that I did not discuss TAM with him – this is just an example of “bright minds think alike”:

“Is that the Brie Melt on Cranberry Walnut Bread I am smelling or is it a deep value bargain?  I believe the answer is both.

Shake Shack’s ($SHAK),  current market cap values each location at ~$30mm. $GRLD trades at ~$25mm per truck.


GRLD trucks are mobile not stuck in a brick building with expensive leases and high overhead in terms of employees and lease payments therefore making GRLD’s margins highly desirable.

Advantage:  GRLD!

GRLD’s YoY growth rate is 53% which is nearly double that of SHAK.

Advantage GRLD!

As you can see a simple comparison illustrates the earnings power, high operating margins, low EBITDA multiple and tremendous scalability of GRLD.

Q: Who doesn’t love grilled cheese? A: Nobody.  Therefore a simple TAM analysis will show the market opportunity is enormous for GRLD and that’s just in the U.S..

European’s love cheese which is just one area for hockey stick like growth for this company.

I do not currently have a position but this fits squarely in my deep value bargain portfolio of OTC stocks in the following sectors, Drones, Robots, Podcasting, Marijuana, and Infant Mining.

Good Luck and stay sharp traders.”

As you can see, my friend, we’ll call him “Sharp Executive” noted something that I hadn’t even gotten to:  the universal truth that Europeans love cheese!  Great point, S.E..   His hard data points on $SHAK are also undeniable.

I’d bring up one more simple data point that you’ll be able to wrap your head around: according to GRLD’s own website, their Current Ratio has improved drastically from last year.  While GRLD’s current ratio as of 12/31/13 was roughly .136, they’d improved that number to .175 as of 9/30/14.

I think I’ve done enough to provide you with a base to prove that perhaps Barry Ritholtz’s article on irrational exuberance would have been better served with an example other than The Grilled Cheese Truck Inc.    I can’t prove it, but I’ve heard that the Wall Street Elite like Ritholtz tend to use things like High Frequency Trading to manipulate markets to go their way, even when their theses are unsound.

Value… Growth… Potential activist target…  think about it.

Do your own research – don’t listen to gurus or bashers.

Ritholtz: “Grilled Cheese Truck and $100MM Irrational Exuberance”


*EDIT:  It has come to my attention that Ritholtz’s “4 trucks” number isn’t even correct.  Although the Company’s website shows 4 tabs for truck locations, you may notice that some of those tabs show multiple locations at once.   This is because, as anyone who actually takes the time to read the Company’s 10q will know, they actually own NINE trucks, and license 2 others (like franchises, I guess).   When you re-do Sharp Executive’s per-truck-ratios based on the new numbers, well:  the numbers speak for themselves.



disclosures: I do not have any positions in any of the companies mentioned in this article.  I have not been compensated by any company for writing this article.  This post is most definitely NOT investment advice, and is positively NOT a recommendation to purchase (or sell) any securities.  If you still don’t get it, you should probably check the calibration of your sarcasm detector.


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