Artko Capital, an asset management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. For the fourth calendar quarter of 2021, an average partnership interest in Artko Capital LP was down 3.4% net of fees. At the same time, investments in the most comparable market indexes—Russell 2000, Russell Microcap, and the S&P 500—were up 2.1%, down 2.7%, and up 8.6%, respectively. For the calendar year of 2021, an average partnership interest in Artko Capital LP was up 19.4% net of fees. At the same time, investments in the aforementioned market indexes were up 14.8%, 19.3%, and 28.7%, respectively. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Artko Capital, in its Q4 2021 investor letter, mentioned Potbelly Corporation (NASDAQ:PBPB) and discussed its stance on the firm. Founded in 1977, Potbelly Corporation (NASDAQ:PBPB) is a Chicago, Illinois-based restaurant company with a $177.4 million market capitalization, and is currently spearheaded by its CEO, Robert D. Wright. Potbelly Corporation (NASDAQ:PBPB) delivered a 10.57% return since the beginning of the year, while its 12-month returns are up by 1.98%. The stock closed at $6.17 per share on March 18, 2022.
Here is what Artko Capital has to say about Potbelly Corporation (NASDAQ:PBPB) in its Q4 2021 investor letter:
“Potbelly (PBPB) – 6% of Portfolio; $3.70 cost basis/$5.80 current price
Potbelly had close to a 30% return for us in 2021, though much like our other small caps, dropped 38% from its mid-2021 high. The $160mm market cap company continues to be in the midst of turn around from distressed 2020 levels with the addition of an experienced CEO, Bob Wright, formerly the COO at Wendy’s, where he had substantial success driving top-line and profitability improvements at over 6,000 locations. We believe he has done an admirable job thus far, driving Same-Store Sales to above 2019 levels, including 4.5% in 3Q 2021; achieving 10% shop level profitability and company-wide breakevens all while facing substantial inflationary headwinds in labor and input costs as well as a serious lag from the Chicago Business District segment. This turnaround has not been without costs to shareholders with a 22% increase in shares outstanding and a continued burn in cash, leaving the prospects of additional capital raises very much on the table.
Taking a bigger step back, however, our original thesis of significant value creation through changing the mix of the company from substantially all company-owned locations, to a more of a franchisor, more consistent with Mr. Wrights’ background at Wendy’s, is very much back on track. While of course, we would have liked to see more progress on the thesis in 2021, we believe stabilizing the company and positioning it for lucrative franchise sales, and operating leverage-based free cash flow generation was a more urgent priority. We believe that at mid-teen level percentage shop level profitability the company will begin to leverage its fixed administrative cost structure to achieve double-digit millions free cash flows in the near term. Further out, even a modest sale of existing locations to franchisees and layering unit growth through franchise sales should continue to create a consistent and high cash flow generating business model that should be valued closer to its franchisor competitors such as McDonald’s and Wendy’s at high teens EBITDA multiples resulting at an over $20 price target. These may be “pie in the sky” upside potentials, however, as this was always more of an Enhanced Portfolio (high risk reward ratios) investment we believe it is currently appropriately sized within our portfolio. We are excited to continue to monitor Mr. Wright’s progress and an announcement of a multi-year strategic plan in 2022.”
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Our calculations show that Potbelly Corporation (NASDAQ:PBPB) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. Potbelly Corporation (NASDAQ:PBPB) was in 8 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 10 funds in the previous quarter. Potbelly Corporation (NASDAQ:PBPB) delivered a 22.18% return in the past 3 months. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
