Franchise Talk

Rocky Mountain Chocolate Factory

September 3rd, 2009 | Author: Jack

I’ve been looking for a fantastic micro-cap investment for a long time. While I’m quite confident that stocks like Marvel and Dreamworks will make me a decent profit, it doesn’t change the fact that they are billion dollar companies. No matter how fantastic the business, simple mathematics puts a ceiling on growth. The bigger the company, the closer that ceiling is. With this in mind, it’s no wonder that I’m going after a smaller company (though CAPS won’t let me rate it unfortuantely).

Supposedly, smaller companies are riskier because their is a higher likelihood of bankruptcy. I’m not business expert, but the only argument I’ve heard for this is “just because they’re small”. In my opinion, good finances are good finances regardless of company size. A big company with horrible finances can still go bankrupt because they need more money to keep their business afloat. I suppose one could argue that bigger companies are more “diversified”, but over diversification and poor management can bankrupt a company as well. Poor expansion from over diversification also limits growth.

So while browsing micro-caps with solid balance sheets, I came across Rocky Mountain Chocolate Factory. The company has no long term debt. Zero. Not only that but it has 10 million in current assets vs 3 million in current liabilities. Total assets amount to 17 million vs 4 million in total liabilities. That’s a fantastic balance sheet in my eyes.

I also love the management style of the company. The company owns very few company owned stores, 7 out of over 350. Read full post.

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