Rocky Mountain Chocolate Factory Inc. Common Stock (RMCF) fair value

ACCE thesis

Rocky Mountain Chocolate Factory franchises and operates chocolate and fudge stores, and supplies its franchisees with chocolate, candy and other products from its own production and distribution, which is where most of its revenue comes from. The positive side is a fixed-cost asset base and an established brand, but that is not what the numbers show right now: revenue fell 4.1%, gross margin is 9.9%, and operating margin is negative 16.5%, so the business is shrinking and losing money at the operating line. Return on equity of negative 99.4% reflects a company whose equity has been almost wiped out by losses, leaving little cushion for a turnaround. The stock screens cheap on a forward P/E of 0.9, but with an 8 million dollar market cap and no index membership, the multiple likely reflects expected losses more than undervaluation. A composite score of 20/100 says the same thing from our side. This is a name to look at only if we see evidence of margin repair or a clear path back to revenue growth, and nothing in the current data supplies either.