Whitefish, MT / May 6, 2014 / The over-the-counter market is often compared to a graveyard, with
shells of former companies and others that are barely surviving. Given
the grim reputation, most institutional investors are forbidden from
buying or selling over-the-counter stocks. These dynamics provide
individual investors with great opportunities if they are able to
uncover the proverbial "diamonds in the rough".
Creative Learning Corporation (OTC: CLCN), both profitable and
growing, may be just such an opportunity. With a market capitalization
of just $30 million the company trades under the radar of many
institutional investors, which has led to a cheaper valuation than many
of its larger competitors. Shareholders could see tremendous expansion
over the coming years as the company continues to mature.
In this article, we’ll take a look at why individual investors may
want to take a look at the small and growing company as it gains
traction in key end markets.
Profitable & Growing
Creative Learning generated revenue that grew 8% to $1.9 million and
net income that rose 24% to $296,800, or $0.03 per share, during the
quarter ended December 31, 2013. In FY 2013, the company grew its
franchises from 210 to 395 both domestically and internationally.
Royalties from existing franchises also continued to grow, suggesting
robust organic growth in franchisee businesses.
On its balance sheet, the company recorded $2.6 million in cash and
$3.5 million in total assets compared to just about $800,000 in total
liabilities. The company’s trailing twelve months (TTM) Altman Z-Score
of 19.03x – which measures the likelihood of bankruptcy using five
financial ratios – suggests that the firm faces very little risk, while
its outsized cash position provides management with capital to grow
Creative Learning trades with a TTM price-earnings ("P/E") ratio of
about 23.48x and a price-earnings to growth ("PEG") ratio of just 0.18x.
By most accounts, a PEG ratio of less than 1.0x suggests that a
company’s stock may be undervalued if its growth rates are expected to
continue. Accelerating growth rates over the coming quarters could pave
the way for these multiples to expand over the coming months.
The company also operates a very profitable business at its core with
25% TTM EBITDA margins and very little overhead. Return on equity –
which measures net income as a percentage of shareholders’ equity –
stands at over 60% and demonstrates the strong profitability. By
comparison, companies like LeapFrog Enterprises Inc. (NYSE: LF) have
just a 24% return on equity.
Creative Learning has a number of key upcoming growth drivers. With
61 new franchises signed in the quarter ended December 31, 2013 alone,
the company could see a significant expansion in its royalty income from
new franchisees if their businesses grow as existing franchisees have
seen. These high-margin revenues should help boost both the company’s
top- and bottom-line financial results.
The company also recently launched a new franchise concept, Challenge Island® which now has 21 franchises, and will be launching its third franchise concept Sew Fun Studios this month (the bulk of the current business is the Entrepreneur Magazine award-winning Bricks4Kidz®
franchise). By addressing new domestic and international end markets,
these franchises could drive its franchisee sign-ups as they gain
traction and further boost its top- and bottom-line growth. These
franchises just began selling in 2013 and haven’t had much of an impact
on revenue quite yet.
Creative Learning appears to be trading at a discount to its growth
due to its status as an over-the-counter stock, which presents
individual investors with a potential opportunity to profit as the
company matures. As evidenced by Chipotle Mexican Grill’s (NYSE: CMG)
~90% three-year returns, investors have a strong appetite for franchise
businesses across many different sectors.
Investors in profitable and growing over-the-counter stocks, like
Grupo TTM SAB (OTC: GTMAY) or Alliance Creative Group Inc. (OTC: ACGX),
may also want to take a look at Creative Learning Corp. given its robust
growth, profitable operations, and solid balance sheet. Over the coming
quarter, the company has significant growth opportunities that could
catalyze the stock to move higher.
- Company Website
- OTC Markets Profile
Except for the historical information
presented herein, matters discussed in this release contain
forward-looking statements that are subject to certain risks and
uncertainties that could cause actual results to differ materially from
any future results, performance or achievements expressed or implied by
such statements. Emerging Growth LLC is not registered with any
financial or securities regulatory authority, and does not provide nor
claims to provide investment advice or recommendations to readers of
this release. For making specific investment decisions, readers should
seek their own advice. Emerging Growth LLC may be compensated for its
services in the form of cash-based compensation or equity securities in
the companies it writes about, or a combination of the two. For full
disclosure please visit: http://secfilings.com/Disclaimer.aspx
SOURCE: Emerging Growth LLC