The Retail Food Group Limited (ASX: RFG) share price slumped almost 7% on Monday on greater than average volumes for no apparent reason other than UBS releasing a price target of $5.70 per share.
Although the volume and magnitude of sales experienced by Retail Food Group could be indicative of something more sinister, in this case, it appears the sudden fall in share price is attributable to a broker or large hedge fund reducing its holdings.
Accordingly, I believe long-term investors should take this pull-back in share price as an opportunity to buy the stock. Here's why.
About Retail Food Group
Retail Food Group should need no introduction for long-term readers.
The master-franchisor of Brumby's Bakery, Michel's Patisserie, Donut King, Gloria Jean's Coffee and Crust Pizza (to name but a few) has a ubiquitous brand presence throughout major Westfield Corp (ASX: WFD), Vicinity Centres Re Ltd (ASX: VCX) and other third-party owned shopping centres in Australia.
Retail Food Group operates a vertically integrated business model with strong brand names and a global network to provide franchisees with leverage to growth.
Like Dominos Pizza Enterprises Ltd (ASX: DMP), rapid franchisee expansion and well-timed acquisitions have seen group profits soar in recent times.
2017 results
For the first-half of 2017, Retail Food Group reported net profit after tax rose 17% to $33 million. The result was driven by headline revenue growth of 5% (to $175 million), including growth through the commissioning of a further 138 outlets in the first-half.
Pleasingly, same store sales and average transaction values grew modestly (1.4% and 2.0% respectively) to indicate the underlying business remains in robust shape and on track to continue its growth trajectory.
Management rewarded shareholders with its 21st consecutive dividend increase, declaring a 14.75 cents dividend (fully-franked). This places the company on a solid trailing yield of 4.9% (based on Monday's close of $5.72).
Whilst the results are undeniably strong, the market (and perhaps UBS) is seemingly becoming nervous about the company's outlook.
Growth outlook
Retail Food Group's shares have performed tremendously to date, doubling in value over the last five years to provide a compound annual growth rate of 15.4% (by my calculations), before dividends. This easily trumps the S&P/ASX 200 Index's (ASX: XJO) long-term average return of 9%.
However, as the company matures, Retail Food Group will have to dig deeper to continue this astonishing growth rate.
In my mind, management's plans to expand offshore, pursue new M&A activity and open further franchise outlets should be sufficient to keep the company growing for at least a few more years.
Foolish takeaway
The inevitable question faced by every maturing company is how to continue growth as it gets bigger. In my opinion, Retail Food Group looks to have the recipe down pat with a solid mix of organic and acquisitive strategies in place to continue delivering year-on-year growth.
With management already forecasting full-year NPAT growth of circa 20%, and the company trading ex-dividend on 17 March 2018, I believe Monday's share price slump presents an opportune entry point for long-term investors to buy the stock.
