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Groove Portfolio Focus Stock #3
RAVE Restaurant Group(Nasdaq: RAVE)
Price $1.39
Market Cap $19.8m

Rave Restaurant Group - Turnaround Story

We have encouraged Groove community members to buy shares of Rave Restaurant Group (Nasdaq: RAVE)  and it appears we may have been early in so doing. The shares have traded lower since then and this is likely due to the confluence of two factors - tax loss selling and the company's selling of shares through its ATM offering or investors perceiving that ATM sales are occurring.  

Almost anyone who owns RAVE shares has a loss in their position, as the stock is trading very near to its historical lows.  For this reason we would not be surprised to see continued selling of RAVE shares through year end, as many investors may want to lock in those losses to get them on this year's tax return.  Another source of selling could be investors selling due to the company's recent filings indicating that they can sell up to 5 million shares in an "At the Market" offering that allows the company to sell shares each day.  While we do not know if the company is still selling shares at these lower levels, the optics on the timing of that filing are challenging as it certainly does give the feel that the company might be selling shares right now and we believe this is something that investors were not expecting.     

On the bright side, we are still of the belief that the company is in the early stages of a turnaround.  We believe Rave CEO Scott Crane is implementing changes that will eventually (when implmented system wide) lead to sales gains and increased store level profitability, including the addition of new menu items, delivery, drive thru service and a new app based loyalty program that also allows online ordering.  Due to the time it takes to roll out these new initiatives systemwide, we may not see the sales impact for a quarter or two.  Regardless, we think Crane's operational initiatives will eventually pay off for shareholders and the stock is trading at a very low valuation even though we could see it move lower between now and year end based on the factors mentioned above.  Bottom line, the last 10 trading days of the year could be a good time to start adding a few more RAVE shares.  Even if we are early still, if Crane is able to right the ship this stock will trade exponentially higher and at the first appearance of proof in the numbers will certainly send the shares much higher very quickly. We are going to be patient but open to adding shares on weakness.


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