Now could be a great time for investors to revisit Retail Food Group Limited (ASX: RFG) with the group's shares coming under significant selling pressure over the last four months.
The company's shares hit an all-time high of $8 early in March which represented a gain of 300% since mid-2011. Since then however, the stock has lost nearly one third of its market value to trade at just $5.40 (after hitting a low of $5.15 earlier in the week).
Retail Food Group mightn't be a household name, although many of its brands are. The company is Australia's largest multi-brand franchisor and the owner of brands such as Pizza Capers, Donut King and Brumby's, while it also recently acquired coffee giant Gloria Jean's.
One of the likely reasons behind the stock's fall from grace was an update provided by management in June. To begin with, the company announced a $3.3 million increase in cash costs in order to achieve annual operating cost savings of roughly $16 million, while it also booked an $18.5 million non-cash write-down on underperforming brands.
The majority of this impairment will be recognised in this year's earnings results, meaning that actual earnings could be considerably less than underlying earnings for the period.
It's possible that investors may have also become concerned about the company's valuation, or the current state of the economy in general. Consumer confidence has experienced a sharp fall recently due to the situations in Greece and China and investors could be wary that this could result in individuals saving money wherever possible (e.g. making their own coffee, rather than buying one from the group's various stores).
Regardless of why the company has been sold off by Mr Market recently, long-term investors should recognise this as an opportunity to start building a position in the stock. Of course, investors will also need to be mindful of a potential slow-down in organic growth or the potential for management to get trigger-happy with acquisitions, but at today's price there could still be plenty of upside potential for investors.
