After days and days of heavy declines the Retail Food Group Limited (ASX: RFG) share price is finally heading in the right direction.
In morning trade the food and beverage company's shares are up over 14% to $1.86.
What happened?
With no news out of the company and no broker notes to speak of, there are a couple of potential catalysts for today's gain.
The first is bargain hunters. While it is very unclear what its full-year earnings will look like in FY 2018 due to recent media coverage, based on its trailing earnings Retail Food Group's shares change hands at just 4x earnings.
Some brave investors may believe that this is just too cheap to say no to.
The second catalyst, and perhaps the more likely of the two, is short covering.
As one of the most shorted shares on the local market, there are a significant amount of shares held short which will eventually need to be covered. To do so short sellers must buy shares on market.
Considering its fall from grace over the last week I wouldn't be surprised if short sellers have decided to lock in their gains now.
Should you invest?
While every share has its price, I think the lack of clarity in the company's guidance makes it very hard to value Retail Food Group today.
In light of this, despite how cheap it looks I would suggest investors avoid the company. I am concerned about its future considering its high level of debt and the potential impact on franchise sales following recent media coverage.
Instead, I think investors would be better off with industry peers Collins Foods Ltd (ASX: CKF) and Domino's Pizza Enterprises Ltd. (ASX: DMP).
