NEW YORK (TheStreet) -- The free promotion that SoupMan (SOUP) enjoyed during the Super Bowl is certain to help the food services start-up to expand beyond New York, but it also presents a compelling investment provided you're prepared for some volatility.
SOUP data by YCharts
SoupMan is traded over the counter. If nothing else, being traded over-the-counter signals the possibility of volatility. It has a market capitalization of just $15.2 million and was trading Thursday at 40 cents a share. Due to a limited float of 27.3 million shares, the stock will be volatile. Since I'm taking a long-term view, current level of trading activities matters a little.
The first thing I find impressive about this company is that it has positioned itself as "one of New York's iconic brands", the quality that made the NFL choose the company to serve its soup at the event.
Indeed, the NFL could have invited any other soup. At least, McDonald's (MCD) is a well-known brand that also makes soups. And considering that big names, like McDonald's, are well represented in all part of the US, it's safe to say that SoupMan is iconic.
With the Super Bowl being the biggest event on television, the publicity SoupMan got through this event is almost priceless. For clarity sake, a 30-second commercial at this year's Super Bowl cost $4 million. For me, SoupMan got the best promotion possible by serving spectators its soups. I don't think it had to spend up to $4 million to do that. That sort of promotion is worth more than just displaying a jingle for 30-second for people who're already addicted to McDonald's or any other big name to see.
Long story short, the Super Bowl has helped increase the popularity of the Original SoupMan brand. And judging from the moves it's made, it appears the company is looking to leverage this 'free nationwide publicity' to expand its business.
First, it recently opened its Famous Delicatessen & Restaurant at Resorts Casino Hotel in Atlantic City. The company also plans to open the next SoupMan Delicatessen & Restaurant at Mohegan Sun in Pocono Downs, Pennsylvania later this year. In addition, it plans to open 25 franchised units in casinos across the US over the next five years, a move that execs projects to be worth $2 million in sales annually.
SoupMan has also been getting its soups into established grocery stores like Wal-Mart, Wegmans and Whole Foods (WFM). According to the company, its soups are already available in over 4000 supermarkets across the US. Moreover, with food truck business gaining traction in the US, SoupMan plans to have 50 Soup Mobiles on the road in 2014, a service that the company claims to be first national brand to offer.
My point is that the publicity it got from the Super Bowl will make things easier for the company in all of these ventures. Moreover, the effect of being recognized at the Super Bowl coupled with these moves would foster brand loyalty, which is my next point.
If there's one thing that makes McDonald's the leading fast food company, it is brand loyalty. This one thing is quite common in the food and drink industry. Companies like Coca-Cola (KO) and PepsiCo (PEP) also enjoy it. The key thing that makes companies have brand loyalty is high customer satisfaction.
But can SoupMan satisfy its customer?
I'd say YES. Here's why. First, that NFL called upon SoupMan in the first place suggests that this company do satisfy its customers. Second, that an institution like Resorts Casino Hotel selected SoupMan as one of the brands for its food court speaks volume of how much the management over there believes in the service of SoupMan. So, of course, as this company continues to expand, we can expect it grow its brand loyalty.
As you probably know, the benefits of having a strong brand loyalty are countless. Some include increased chances of sales, ease of entry into new markets and ability to cut down cost when needed. If you're conversant with the food and drink industry, you'd know that commercials are a big component of the expenses list in the industry.
In the end, being able to cut costs would result in a capital efficient business, meaning that the company will be able to reward its shareholders adequately since it wouldn't need to reinvest a big portion of its income to expand.
As it is with most micro-caps, SoupMan is struggling in the financial aspect. In 2013, it recorded a net loss of $6.568 million, 4% higher than 2012's net loss. Its cost of sales as a percentage of total soup sales for the year ended August 31, 2013 was 91%, compared with the 88% recorded in 2012. This raises the question of if this company can ever be profitable. Well, that depends on how you look at the potentials ahead of it. However, a number of things from the company's financials shed more light.
The first thing is that it is expanding, as shown by its revenue. In 2013, it recorded total revenue of $2.383 million compared with the $1.898 million in 2012. Its fiscal 2014 first quarter revenue also confirms that SoupMan is expanding. It recorded total revenue of $1,072,216, a 48% increase from the prior year quarter.
The rate at which it's expanding becomes more obvious when you consider that the revenue it recorded for the first quarter is almost half of what it recorded for a whole year. Moreover, it reduced its loss during the quarter by more than 50% from same quarter a year before.
Its ability to cut costs, which I've discussed above, also gives hope. Its financials shows us how this happens in real life. One of the ways it's doing this is by partnering with various grocers to allow its soups on their shelves, instead of setting up its own store. In fact, it recently finalized partnership with Midwest grocer, Meijer to allow its soups on its shelf.
Finally, the fact that the company doesn't need a fortune to implement its full business plan also gives hope that this company has a future. According to the company, $6 million will be sufficient to implement its full business plan. More interesting is the fact that the company can operate this year with as little as $1.5 million, which shouldn't be a problem considering that it had over a million dollar worth of sales during the first quarter. This gives the feeling that the company would post a profit this year.
Lastly, the company says, with $6 million in sales, its operations would be self-sustaining and would be able to record a positive cash flow. With the great developments that has happened so far this year, I project that the company will be near the $6 million target, which would give it a good foundation for 2015.
I would like to make it clear that what places SoupMan in a good position to breakeven this year is the fact that it's business isn't capital-consuming, an attribute that should attract long-term investors.
Whenever I write about micro-caps, the first risk I mention is that they are volatile. SOUP in particular is volatile, as its stock price is largely dependent on trading activities.
Another thing is that SoupMan is largely involved in making soups, meaning that it has only one line of products. Investing in a company that offers only one line of products is highly risky. The reason for that is that, in an event that that product fails, the company won't have a soft surface on which to land. Moreover, with the business of making soup being a seasonal one, there are chances that SoupMan's sales would fluctuate.
Finally, you should know that SoupMan operates in a highly competitive environment. For instance, McDonald's is one of the companies against which it competes.
Considering the positives from being recognized at Super Bowl coupled with the fact that SoupMan has been around for quite a while, I think the level of risk involved with an investment in SoupMan is moderate. In conclusion, this year would be massive for SoupMan, one in which its stock might start to reflect its potentials. Its impressive first quarter results are part of motivation for that proposition. I mean, capital efficiency is beginning to reflect in its figures. I expect it to carry on in this fashion and, at the end of the day, become a profitable company.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.