Hey everyone, I’m not sure I’ll be able to get a full-blown edition out between now and then, but I wanted to let you know bulletin board company Spicy Pickle (SPKL) will be hosting an investor conference call on Wednesday (April 16th). The call will start at 4:15 pm EST/1:15 pm PT. To participate, call 1-866-696-5897 if you’re in the U.S. or Canada. Overseas shareholders should dial 416-641-6128.

The conference call is the first for Spicy Pickle, though I don’t think the last. The agenda includes a review of 2007, and an outlook for 2008. I strongly suggest you listen in if you’re a current or prospective owner. Some participants will be able to ask questions - which is the real upside to these calls.

As for the market, traders still seem to be sleepy. Make no mistake though - we’re in a short-term downtrend. The odds here favor a little more downside too, now that the key support levels have been broken.

To be specific, I use short-term moving averages as floors and ceilings. On the chart nearvy, I’ve plotted a 50 day line (in black) and a 20 day average (in red). The S&P 500 fell under both last week, and is content to stay there…and apparently sink further.

As for the floor, 20-day Bollinger bands (blue) have worked well recently, but I’m still eyeing this year’s lows around 1273. Either could be a rebound point; my money is on 1273 though. If that line should fail to support the market, then look out below.

In the interest of full disclosure, I did end up selling my QQQQ April 47 calls yesterday at about $2.90, locking in a 55% gain.

So why did I sell them when I’m still bearish? Bird in the hand - it’s all about risk and reward. I felt good about that downward move. Now - being expiration week - the trends are getting a little iffy. If I had to bet, I’d bet bearishly. I don’t have to bet though.

By the way, bulletin board stock Spicy Pickle has been breaking ceilings of its own the last couple of days. After closing the $0.71/$0.75 gap from September 24th, the buyers appear to be interested again (not a total surprise). Since then, a minor resistance level has been topped. Could this be an omen of something to come out in the call? Like I said, I suggest you phone in and find out.

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Here’s last week’s scorecard….the NASDAQ was up 0.14%, the S&P 500 was down 1.08%, and the Dow was down 1.17%. Most of the loss (or near-loss for the NASDAQ) was the result of a weak Thursday and Friday. Those two days unwound Monday’s boost, and were threatening to unwind the surge from the Friday from the week before.

I don’t know what Monday will hold in store; the market has been too erratic to offer any early hints. I still think though (and as I’ve said a few times now) I’m betting against the moves to the edges of the recent boundaries. If we get a gap (bullish or bearish), I’m going to bet the market will move even further in that direction by the end of the day. But, by the end of that day the trend will be exhausted, and we’ll be ripe for a reversal.

So, the most bullish thing we could see for stocks is a much lower open and a big selloff over the course of Monday; by Tuesday AM we’re apt to be rallying again. And, vice versa. I’ll re-insert Saturday’s image of the QQQQ’s, which really illustrates my point.

Monday’ always nutty anyway, so it may be best to be on the sidelines until everyone gets all their anxiety out of their system and into the market. Then when they’re done, we’ll wade in.

By the way, you may have seen Spicy Pickle (SPKL) unveiled their Q4 and full year numbers last week. I have no idea why they don’t put out press releases with their quarterly results - this is the second time they’ve done it. Maybe they don’t think they look all that great, but frankly, they’re actually pretty good for a start-up.

Anyway, I’m not going to examine them as deeply as I normally would. Why? Because they don’t mean much. Spicy Pickle is growing so fast, the year-end data from 12/31/07 is already obsolete. Plus, to compare Q4 from last year to the Q4 from a year ago wouldn’t make much sense, again because they’re growing so fast.

The basic numbers….$1.2 million in revenue, and a net loss of $3.6 million. Pretty much what I expected - going public and doing all that fund-raising can take a toll on the numbers, but it’s mostly a one-time cost. Like I said, comparing now to then (or even comparing now to the future) is not apples to apples.

Anyway, here it is if you want to see the whole filing.

On a semi-related note, a recent reader question got me thinking about Spicy Pickle and how to evaluate it. That’s tough, because the franchise model is unlike any other business. The top line usually looks low. The thing you have to keep in mind is that the bottom lines are generally much bigger (relatively speaking). If there were earnings yet, the price-to-earnings ratio would make the most sense. A price-to-sales ratio means nothing, so don’t bother.

Pick of the Day: Emergent BioSolutions (EBS) is an interesting company….the technicals (chart) caught my eye, but the fundamentals kept my attention. They produce immunobiotics, and apparently good ones. I’m not going to say more, because that’s just not in the scope of the ‘Pick of the Day’. You may want to take a good look though. It’s one of those biotech outfits with current sales as well as potential sales from some projects in the works.

The one thing I’m not crazy about is chasing it after last week’s big runup; I’d like it much better after a good pullback and the establishment of a base.

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Here’s the recent chart of Spicy Pickle (SPKL)…pretty straight-forward as far as I’m concerned. The support line broke today, allowing SPKL to trade as low as 91.5 cents.

As you can see, that’s also under the 61.8% Fibonacci retracement level.

Whether this is a good thing or a bad thing is a matter of perspective. If you like values and can be patient, I see this as a good thing. If you were hanging on to your SPKL shares and hoping every single day is a winner, then you’re probably not thrilled right now.

Given the choice, we’d all rather see this stock blast past prior highs and never look back. Life doesn’t work that way though. In this case, the bears won the battle (though not the war). It happens. Now that it has though, I feel we have to take a more critical approach with any re-entry. That means we will probably want to wait until it’s clear the stock is in recovery mode (or makes a crazy low) before jumping on board. That could be tomorrow, next week, or next month. However, it also means a better price when we do get in again.

The alternative is chasing a stock while it’s on the way up. I’ve done that too, but I’ve found it’s much less stressful to buy at lows than it is to buy at highs…though it requires more patience.

SPKL remains on our radar, but is not an immediate ‘buy’ at this time.

Side note: In some ways I’m almost glad this happened now. It’s good to flush out any dead weight/potential sellers every so often; it clears the decks for the next bullish leg. That’s a fairly warm-n-fuzzy viewpoint, but true all the same.

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“Four stores and seven more to go, our founders brought forth to this continent a new restaurant…”

Sorry - I couldn’t resist paying a little homage to Abraham Lincoln while at the same time describing what’s going on with one of my newest favorite companies.

More good news from Spicy Pickle (SPKL) yesterday…they now own four more of their own restaurants, with all the rights and privileges (i.e. sales and profits) thereof. That brings the total owned units up to five, and two more are under construction.

Say what? What happened to 123 stores we were talking about a couple of weeks ago? Relax - that number is still valid. Most of the 123 restaurants were franchises owned by franchisees; their owners pay royalties to the Spicy Pickle corporate office. The five stores (plus two more on the way) we’re talking about are outright owned by the company. Hence the title of this blog entry…though technically as a franchising company Spicy Pickle is the lessor instead of the lessee.

The motivation here is simple…money. Rather than collecting about 7% worth of royalties on the average store’s 700K in annual sales - about $50K per store - the company now collects 100% of the sales, and benefits from 100% of whatever profits are generated. With the upside comes more responsibility too…the company also has to run and manage the stores. Clearly the trade-off is worth it to them.

Let’s do some simple math here. With owning five of their own stores, each of which is doing about $700K each, the company’s top line is improved by a net of about $3.2 million per year (we’re deducting the franchise fees they used to receive from these stores, but won’t anymore). That’s a pretty nice improvement compared to the current annualized sales of about $1.7 million (based on 35 operational units).

This also advances the company towards the end-goal of profitability. I don’t think the four-store acquisition will carry then all the way into the black. However, with 88 more franchises signed, sealed, but so far undelivered, I do think the swing to profit is in the foreseeable future.

So does ‘four stores and seven more to go’ mean we can expect seven more company-owned stores to soon pop up among the 88 remaining franchised units? Actually, yeah, something like that. The $6 million fund-raising they completed back on December 15th was enough to open somewhere between 12 and 15 new company restaurants. Five are up and running, so I think there’s room for at least seven more.

As for the stock, the chart is as triangular as one the restaurants’ diagonally-cut sandwiches…as it has been for weeks. That’s not a bad thing or a good thing, but it does put any short-term trade on the backburner.

The support and resistance features of the wedge shape are currently trapping SPKL between $1.12 and $1.26, but the range is shrinking fast. I’m looking for a move one way or the other soon. I’d be a quick buyer if the resistance line is broken. If support is broken first, I’d also be a buyer once all the dust settles and shares start to perk up. That bottom is a little harder to define, but I think the better entry level is worth the effort.

Here’s the news release.

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Habits can be a good thing when it’s in reference to corporate growth. That’s how micro caps become small caps, and how small caps become large caps.

While I don’t want to get too far ahead of myself with that discussion, I did want to let you know Spicy Pickle (SPKL) has opened two more stores. That’s the seventh store they’ve opened in nine weeks, and the 33rd store now in operation. And yes, the company is still on track to have 38 to 40 stores open by the end of 2007.

Plus, the company still has over 50 more signed franchise agreements, and expects all of those to be up and running by the end of 2008. That brings the count up to about 90, yet still doesn’t count any new deals they’ll be signing between now and then.

As a reminder, each restaurant contributes 5% of their sales to the company’s top line, plus the corporation receives a 2% rebate from the restaurant’s suppliers. With the average unit doing about $700,000 per year, each one means about $50,000 worth of high-margin revenue for the organization.

With 33 storefronts up and running, we estimate annual revenue run rate should be somewhere around $1.65 million. With 90 stores in operation, annual revenues should be somewhere around $4.5 million.

(As a reminder, each restaurant contributes 5% of their sales to the company’s top lin. Also, the corporation receives a 2% rebate from the restaurant’s suppliers. With the average unit doing about $700,000 per year, each one in operation means about $50,000 worth of high-margin revenue for the organization.)

Don’t forget the one-time franchise fee for each store either. It’s books between $17K and $35K in revenue for the company, depending on whether or not it’s the franchisors first Spicy Pickle restaurant. (Subsequent stores opened by the same person/company aren’t required to pay the full $35K….they just owe half the regular fee.) 

Chart-wise, we seem to be hovering around $1.32 after a roller coaster ride over the last month and a half. We saw a low of $1.09 in early November, and then a high of $1.65 a few days later. Now we’re somewhere in the middle….waiting. Today’s news may well be such a catalyst to get things moving again. Personally, I’m thinking a move above the 20 day moving average line (at $1.41) could be a trade-worthy breakout effort.

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Still hearing the echoes from yesterday’s announcement about opening a new store and signing leases on two more, micro cap company Spicy Pickle (SPKL) released their quarterly (Q3) numbers this morning. It was about what I’d expect for a company that went public in that quarter, but only opened a handful of stores during that time.

Franchise fees and royalties for the roughly 27 stores up-and-running as of the end of the quarter (9/30/07) turned out to be $260K. About $200K of that was in royalties, and the other $60K was franchise fees. Sounds a little low? Here’s why…for accounting purposes, the company doesn’t recognize franchise fees until a store is open. In this particular quarter, they only opened two stores; the other 29 were opened in other quarters (before or after). Point being, don’t get the idea that this past quarter actually reflects the company’s historic and more recent (i.e. the last two months) expansion, because it doesn’t.

The hefty items on the expense lines were also one-time things, like getting the stock launched and introduced to the public….a very necessary expense. They used a combination of cash and stock to do so, but we don’t believe Spicy Pickle will have to lay out anywhere near that much for future publicity/investor relations efforts. That was about a $600K bill this time around.

My guess…SPKL may sell off a little on the bottom line. Traders who don’t really understand the story now aren’t likely to dig deeper into the numbers to gain that understanding. They’re just going to bail.

However, I’d personally use such a dip as an entry opportunity based on the long-term view. Those investors who do ‘get it’ also are wise enough to look at where this micro cap company is going. These Q3 numbers are not a reflection of the company’s future.

Anyway, for the nitty-gritty details, click here. Be sure to check out Tuesday’s blog entry as well.

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I see a trend in place…a good one, for Spicy Pickle (SPKL) stock owners. Just a few moments ago the company announced another store had been opened, and two more leases had been signed. The two new stores leases were signed for are expected to be open sometime in early 2008.

Just for the record, when we first started our coverage back on September 22nd, there were 26 stores up and running. In other words, they’ve added five stores in seven weeks. There’s a word for that kind of thing….’growth’. Spicy Pickle is growing, plain and simple.

This has turned out to be one of our most rewarding ideas in a while, particularly for shareholders. If you happened to miss that first bullish wave, don’t worry - I think another one may be right around the corner.

Ready For Round Two?

I know I probably go a little overboard about reading the blog, but I can’t help it…I’m able to put a whole lot more in there than I can in here. Hopefully you check it out on a daily basis, because if you do, odds are you caught Thursday evening’s mention that SPKL shares had made a nice pullback and were looking pretty undervalued around $1.25.

From that dip - based on the key Fibonacci retracement lines - I also suggested Spicy Pickle was looking ready for another round of buying. After opening at $1.25 on Friday, shares have since made their way up to as high as $1.47, and are currently resting at $1.40. That’s only a 12% gain, but then again, it’s only been three days.

What I’m really keying in on here goes back to Thursday’s and Friday’s bars. In both cases we saw pretty strong opens and closes, with long-tails. That just means the intra-day low was pretty low relative to the open and close (which were fairly high those two days). Generally speaking, that’s a sign of reversal pressure. Some traders may call it a ‘hammer’ shape, though it’s not a perfect example of one.

Less obvious was the support made at the 50 day moving average line…one of my favorite intermediate-term trend indicators. SPKL had only been trading for a little longer than 50 days at the time, so many chart-watchers may not have even been thinking about support being found there.

In any case - and like I’ve said a few times since then - I think most of the initial volatility here has played out. We got a pretty good trading run-up, and a pretty typical trading pullback. Now we can start looking at SPKL as a true investment. And at the $1.40 area, I think Spicy Pickle may be well undervalued relative to where the company seems to be going…five stores in seven weeks!

News You Can Use

The newest store was opened in Indianapolis, Indiana. It’s the second one of ten scheduled for the Indianapolis area, as we discussed back on October 22nd.

The new leases are for stores in San Diego, California, and Austin, Texas. That’s the third one in the Austin area. As for San Diego, I believe it’s the first of twelve slated for the area, which is a big deal. Those stores in new markets are like seeds…once the first one causes a buzz, the subsequent stores are well received. And yes, the company still expects to have around 50 stores up and running by the end of December. Just amazing.

By the way, one of our readers correctly pointed out it’s getting near time for Spicy Pickle’s quarterly numbers. I honestly have no idea what to expect, as most of the quarter they’ll be reporting on came before the largest chunk of the growth/expansion spurt. However, I’m not even sure that the numbers will have any meaning.

The expense of going public was incurred last quarter. Though most of it was booked as non-cash expenses, it’s still going to trickle down to the bottom line. The thing is, it’s not like they’re going to go public again - that’s a one time thing.

The other x-factor…any of those revenue numbers are based on a lot fewer stores than they have now, not to mention a lot more are on the way. So, if you’re trying to compare apples to apples, I just don’t think it’s that kind of scenario. To get a feel for how we’re seeing things, I’ll refer you back to our original analysis.

Anyway, I like Spicy Pickle at Thursday’s closing level of $1.40. I’d like it even better if it can dip one more time following their quarterly results announcement, because I don’t think the market is going to let it linger too low for very long. It seems to me the word on this opportunity is spreading, much like the restaurants are. Here’s the full release.

I hope all of you are watching our small cap pick Spicy Pickle’s (SPKL) chart right now. If you are, then you may have already noticed some clues that a bottom is being tested. And as I said in a couple of blog entries and newsletters, I’d look to buy on a dip when the dip looked done.

Well, if you’re also looking to step in (or back in) before the next wave of buying, I suggest you get ready….I think it’s going to be soon.

Above all else, we’ve now seen a full 61.8% retracement from the highs of $2.02, starting back with the low of 56 cents (from September 21st, when this micro cap name really started to trade well, and with some volume).

More than that, look what happened once that $1.12 level was reached today. SPKL reversed course and started trading back up at the higher end of its range. Upside reversal? Sure looks like it could be.

By the way (as I said repeatedly at the time) I think the right thing to do was take profits about three weeks ago - or sooner - since the chart was starting to look a little extended then. Why take profits on a good micro cap stock in a long-term uptrend? Take a look at the last three weeks - that’s why. If I can make money on two rallies instead of one, why wouldn’t I?

If you didn’t get out, I think you may be off the hook within the next few days. However, I hope you don’t forget that short-term pullback the next time we get over-extended. Remember, the underlying story is driving the stock higher for the right reasons. The hype is pushing it up and down in the meantime. There’s nothing wrong with playing one against the other.

Anyway, I’m thinking round 2 of a SPKL buying spree is just around the corner. Stay tuned. 

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You know, as much as I try to not do it, sometimes I forget that just because I’m thinking something in my head doesn’t mean you know what I mean when you read what I write. Sorry. What reminded me of this today was a good question we got from a new reader. Here’s what our reader wrote…

I am new to the market lingo, can you explain the ” gap ” when referring to the spicy pickle?? Thanks

Since there are probably other folks out there with the same question - and the fact that it’s well worth discussing - I wanted to publish my response here in the blog.

Basically, a gap is a dollar span between two days on a chart where the stock (or index) didn’t trade. An example would better define a gap, so let’s stay with the Spicy Pickle (SPKL) chart.

On the chart immediately below, we’ve pointed out three gaps, where the high trade from one day was lower than the low trade from the next day. (All three gaps are ‘zoned’ with blue, green, or red lines.) This essentially created small areas or spans - from high to low - for which there were no trades.

The most recent gap - the blue zone - from October 17th spans from $1.65 to $1.73. That gap was ‘filled in’ on the 22nd…that day’s low was $1.60, versus the high from the 16th of $1.65. The other two gaps ($1.19 to $1.22, in green, and $0.71 to $0.75, in red) have not been filled in, as SPKL hasn’t fallen back to those levels.

So far it’s academic, right? The reason for the worry is this…investors don’t like untidy charts. Charts are ’supposed to’ move from point A to point B in an orderly fashion, and not jump around. When you get gaps like this, the assumption is that the market will actually retrace those steps to fill the gaps.

Sound silly? I don’t disagree. Stocks ebb and flow all the time, but stocks aren’t animated objects. Gaps get filled just because stocks rise and fall…they have no ‘tidy chart’ agenda. HOWEVER, many investors do have an agenda. If they think a gap will be or should be filled, they may trade in such a way that it actually happens (a self-fulfilling prophecy). For that reason, I do think it pays to be aware of the kinds of pressures that may sway a stock in one direction or the other…even if unmerited.

For the record though, gaps go unfilled all the time. You can’t worry too much about them - particularly the ones that are ancient. The further back the gap is on the chart, the less likely it is that it wil be filled at all.

By the way, bearish gaps (where the stock jumps lower) are just as common, and are subject to the same assumptions.

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