Like Michael Burry’s last winning pick

Restaurateurs Group GEN NASDAQ:GENK hit Marketbeat.com’s radar as domestic purchases surged in the first quarter. As they say, one thing leads to another, like finding out the company is (or at least was) a Scion Asset Management pick in the fourth quarter. Scion is owned and operated by well-known investor Michael Burry, so it’s a notable purchase. Scion’s Q4 13F shows 154,142 shares, or about 4% of the float and 0.4% of total shares outstanding. There are no dates on the 13-F to know what price it paid, but we can assume it was below $11.50 and the minimum earnings are close to 20% and will likely rise.

GEN restaurant group makes a breakthrough; Analysts yawn

GEN Restaurant Group had a mixed quarter in the fourth quarter, but one result outweighs the other due to the lawsuit and outlook for future results. The company posted net revenue of $45.1 million, a 10.5% gain that beat the Marketbeat.com consensus by 300 basis points. The strength was driven by accelerated store openings offset by a 1.7% decline in comps. The drop in comps is not great but lower than expected and offset by store growth. The drop in comps is due to economic conditions expected to improve over the next twelve months.

Margin is where the ratio is weakest, but the lower-than-expected GAAP losses and adjusted earnings are mostly due to preopening expenses. Preopening expenses will remain a margin drag for the foreseeable future, but two things offset the problem. The first is that the number of stores is growing and constitutes a lever for earnings.

The second is the company’s trend toward efficiency and new unit operating metrics, which are among the best in the industry, including significant margin improvement at the restaurant level. The bad news is that GAAP earnings are negative, $0.01, and just below expectations; the good news is that the company is building leverage for the future and is in excellent financial health. Balance sheet highlights include nearly tripling cash, assets growing 38%, relatively stable liabilities, and net worth of $36,000,000, up from negative $6,000 last year.

Preferred purchases in the GEN restaurant group coincide with the results

GEN Restaurant Group insiders began buying the stock heavily following the fourth quarter release. The CEO and a 10% shareholder made the first two purchases on the day of release. Subsequent purchases were made in the following days by other high-level executives and major shareholders. Investors who bought shares by the end of that week were up more than 50% and are on track to double their money.

Analysts could pose a hindrance to the market. The four analyzes tracked by Marketbeat.com peg the stock at a Buy, but reduced their price targets following the release. The new targets assume the stock is overvalued at current levels, but that may not last long. The company’s next earnings release is due in six weeks, and the bar is set low. Analysts expect sequential and year-over-year growth, but have lowered their targets. The $48.05 consensus assumes growth will slow to 6.5% from last year’s 20% increase in store count and expectations for more store openings this year.

Restaurant Group GEN Rises, Then Hits Resistance

GEN Restaurant Group bottomed out before release in the fourth quarter and has surged since then, but the merger may already be over. The market advanced another 15% to open the third week of gains, but failed to maintain the move. The market is now showing resistance near a critical target that has provided support in the past. If the market fails to break above that level soon, it is unlikely to advance until another catalyst emerges. In this scenario, restaurant stocks could fluctuate until the first-quarter release and thereafter if results don’t line up with expectations.

Before you consider GEN Restaurant Group, you’ll want to hear this.

MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and GEN Restaurant Group wasn’t on the list.

While GEN Restaurant Group currently has a “buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

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