Bridgford Foods: Bullish, And Insiders Are Buying Like There Is No Tomorrow

There has been a lot of activity since I last had an article published on Bridgford Foods (NASDAQ:BRID), in early July. First of all, the snack food purveyor released an encouraging third quarter report. Secondly, Seeking Alpha analyst Francesco piped in, with a very flattering deep dive into the company's operations. Thirdly, the company completed a very encouraging Annual Shareholder's Meeting. And finally, the most compelling revelation was the relentless buying of the shares in the open market by the Bridgford family.

Insiders buy to make money. They have the most intimate knowledge of their organization than anyone else. The smart money should generally be followed. Their buying certainly promotes and broadcasts confidence to all market participants. Their buying solidifies the narrative they are convinced their shares are extremely undervalued. Since 8/25/20 there have been six individuals who have reported 22 separate purchases in the open market via form 4 filings to the SEC. Allan Bridgford Jr. has been the heaviest buyer, acquiring a total of 21,872 shares on three occasions. The only two nonfamily members to buy, were Juan Silva and Chris Cole.

How undervalued is the stock price? in the past five years, its stock price is essentially unchanged (despite nearly a triple from $12 to $36 during the timeframe between March 2016 and June 2019). The decline in its market price isn't a sales problem but a gross profit margin problem. Since fiscal year 2016, BRID revenues have soared 89.80% from $140,063,000 to $265,898,000. In that same timeframe, the company's gross profit margin has been as low as 21.30% (in fiscal 2021) to as high as 39.33% in fiscal 2016.

Its seven-year average GPM sits at 31.45%. Its latest quarter produced a 28.20% gross profit margin. If the enterprise can just regain its average GPM, earnings would literally soar. EPS could go north of $1.50 with a mere 500 basis point GPM improvement. Earnings for the past seven fiscal years were:

1. 86 cents in 2016
2. 97 cents in 2017
3. 72 cents in 2018
4. 71 cents in 2019
5. 81 cents in 2020
6. a -61 cent LOSS in 2021
7. $4.96 in 2022 (most of those earnings were attributable to their Green Street real estate sale)

During the first three quarters of fiscal year 2023, the company has earned 20 cents on sales of $171,321,000 (note that its 4th quarter contains 16 weeks instead of 12 weeks).

Reason for the softened profitability? Blame it on inflation. Especially wage inflation and the extreme rise in Bridgford's main input costs, such as flour, beef and pork. Although all three have fallen since their highs, they all present nagging obstacles. The Ukraine war has especially levied pressure on wheat prices, as Ukraine is known as one of the greatest wheat producers in the world. Higher costs to consumers are also an issue. They might think twice about buying that bag of beef jerky or that carton of monkey bread. Their food dollar just doesn't stretch as far as it used to, as they are buying what they need, not necessarily what they want.

Stubbornly high fuel costs are problematic too: It costs a lot of money to fill up the gas tanks of delivery trucks driven by 240 route salesmen, as they pervade their capacity as critical DSD (direct store delivery) personnel.

The good news? the stock is highly undervalued, and Wall Street is asleep at the wheel to even notice, otherwise it would already be priced accordingly higher. Just last Friday, Benzinga listed it as one of its top five value defensive stocks. It sells at a mere 38% of its annual revenue of $266 million and only 77% of its shareholder's equity of $14.11 per share ($128,090,000). Bridgford's market cap is a mere $99 million, and it is virtually debt free.

There is no one other major food processor that even comes close to this combination of bargain metrics, especially considering BRID's shareholder equity (aka book value) is severely underreported.

On its balance sheet, the asset section lists "plant, property and equipment" at just $69,456,000 after accounting for a deduction of $72,300,000 for accumulated depreciation. The fact of the matter is, Bridgford owns 7 processing plants across the country with an estimated real estate market value of over $200 million. That's what I refer to as "hidden value", which readily could be unlocked or monetized at an opportune time.

Highlights of its Annual Shareholder's Meeting: On the frozen food side, Michael Bridgford indicated they are focusing more on its school district food service business. It now serves four of the largest school districts in the nation and is actively pursuing business with six other large districts. Shelf Stable Sandwiches are also gaining momentum. On the snack food side, Baron Bridgford listed these encouraging developments:

(1) Bridgford has established a foothold in 2,000 Target locations and feels they haven't even scratched the service yet, in terms of potential. Just in the past year, their Target sales have jumped from $600,000 to $1,600,000

(2) they have achieved presence in 19 out of 20 Kroger divisions

(3) Their convenience store revenues grew from zero sales to over $8 million since the start of Covid. This market is very important, as it sells 50% of the beef jerky consumed in America. Bridgford has now gained the status as becoming the four largest sellers in this segment

(4) Accountability and efficiency are key. A heavy emphasis on cutting expenses has been adopted. Workers who haven't contributed have been eliminated

(5) "face to face" selling is being emphasized because in reality, "nothing happens until someone sells something"

(6) American values are being highlighted. All input components (beef, pork and flour) are "made in America" including packaging materials. Employees drive "Ford's and Chevy's"

(7) its new Chicago meat processing plant is running extremely well, enabling them the capacity to seek food service business (larger packaged portions) for the very first time.

Potential catalysts

Bridgford could resume its stock buyback program soon or begin paying a cash dividend. Since authorizing a 2,000,000 share buyback nearly 20 years ago, BRID still has 120,000 shares available for repurchase.

Bridgford could also go possibly go private one day. By doing so, it could cut its administrative costs and eliminate the burdens imposed on public companies. No more SEC filings, no need to be transparent, no annoying shareholders to deal with. They currently do not even provide press releases. In addition, trade secrets could be easier to shroud.

Why is this a possibility? Because the Bridgford family already controls 80.70% of the 9,076,832 shares outstanding. They are also firmly embedded in leadership with over 15 family members (now 5th generation emerging) holding top positions. A small premium offered, could entice the remaining shareholders to sell their shares (the family would only have to raise about $25 million to accomplish such a transaction and has the borrowing power to do so, due to their real estate holdings (3) they could produce a better than expected fourth quarter report (4) input prices could begin to moderate.

Conclusion

Bridgford shares are extremely undervalued and there are many catalysts that could finally spur Mr. Market to start noticing this opportunity. My advice? Go big or go home. I do put my money where my mouth is. I own a significant portion of the shares.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.