Small Float Keeps Healthy Arden Group Under Radar
There are plenty of shakily run companies that get raves from Wall Street analysts. Arden Group Inc. is the opposite, a well-run company that couldn’t beg Wall Street’s attention.
Arden Group, based in Compton, is the operator of 16 Gelson’s and two Mayfair markets, all in Southern California. In an environment that’s increasingly dominated by a few large supermarket chains, Gelson’s along with competitors Trader Joe’s and Whole Foods Market Inc. has flourished by providing an upscale alternative to the omnipresent Vons, Ralphs and Albertson’s.
Through the first nine months of this year, Arden Group has grown sales by 9.5 percent, to $288.2 million. Profits have more than kept up, rising 12.6 percent to $10.3 million, or $3.01 per diluted share. (In the year-earlier period, Arden Group reported net income of $9.1 million, or $2.58 a share, on sales of $263.1 million.)
The company has more than $12 a share in cash, very little debt and is expanding at a sensible rate.
“You just have to look at the store they opened in Pasadena (at Paseo Colorado) the store has been very well accepted,” said Richard Gunter, a senior vice president at Wedbush Morgan Securities downtown and the firm’s lead market-maker in the stock. “I think they’re going to continue to expand carefully but it’s an upscale store, so you don’t have to worry about their customers.”
Despite these stellar fundamentals, Arden Group has no analyst coverage. At a recent price of $58, it trades at a price/earnings ratio of 15, similar to that of Kroger Co., the nation’s largest grocery chain.
Kroger, the operator of Ralph’s, has no fewer than 18 analysts covering it. All but three rate it a buy or strong buy, despite high levels of debt (2.67 times shareholder equity), less than 20 cents a share in cash, single-digit sales increases and plans to cut 1,500 jobs to raise profitability. The other big supermarket chains, Safeway Inc. and Albertson’s Inc., sport similar levels of analyst coverage.
Why the disparity?
Simply put, market dynamics. Arden doesn’t have enough shares available to make it worthwhile for Wall Street analysts to promote the stock for their most valued customers, institutional investors. These customers want highly liquid shares they can buy and sell at will.
“Analysts aren’t going to recommend a company like Arden because it’s too small,” said one trader. “They may like the industry, but if every broker in the U.S. wanted to buy it they’d each get 100 shares.”
It doesn’t help that Arden hasn’t done any financings in ages, and has funded its growth internally. Analysts tend to notice potential investment banking customers.
Chairman and Chief Executive Bernard Briskin owns 31 percent of Arden Group, City National Bank owns 20.7 percent, and the company’s stock bonus plan owns another 12 percent. Through super-voting class B shares, Briskin controls nearly all of the voting power. (Company officials declined to comment for this article.)
With so much of the float tied up in a few hands, Arden rarely trades more than 10,000 shares a day
Obscurity hasn’t prevented all investors from discovering Arden Group. Since mid-October, when the company was named one of Forbes Magazine’s “200 Best Small Companies,” the stock has risen 28 percent, hitting an all-time high of 62 on Dec.11. Third quarter earnings were reported in early November.
“There are some sophisticated investors who are aware of the story and want to take a position when they can. They are buying carefully,” said Gunter.
Normally, when a stock in stodgy arena such as supermarkets gets this hot, there is takeover speculation. But Briskin’s grasp makes such a theory implausible.
Staff reporter Anthony Palazzo can be reached at (323) 549-5225 ext. 224, or at