🔎JACK: Massive short squeeze in the making?
It's GAAP profitable in spite of its restructuring program. It's trading at 2x P/E. And it's one of the most shorted stocks in the US.
Selling consumer products is hard these days, especially if they target low and middle income households which are struggling with the cost of living crisis and a soft labor market.
Selling consumer product stocks to investors is arguably even harder. Nobody cares about B2C. It’s all about B2B. The problem with that is that B2B can’t exist alone. Every economic process requires a human at the end of it who is willing and financially able to buy.
There is a major rotation incoming from overhyped and overpriced B2B assets to neglected B2C assets. This is one of my strongest contrarian beliefs right now. I don’t know whether that rotation will happen as an extension of the current bull market or whether it will happen inside of a market consolidation. But either way, I have high confidence that it has to come eventually.
Once the tide turns, the most hated stocks in the most hated market segments will likely perform best. Like mismanaged and financially struggling burger chains for example.
This is the story about a company that has been frying burgers in the US for 75 years. That has pioneered drive-thru fast food and grew rapidly during the postwar rise of American suburbia. That has gambled its assets away in multiple financial engineering experiments. And that now has an opportunity to fix itself.
This the story about Jack in the Box.
TLDR Summary
The stock is down more than 90% from its all-time high, in part due to unfortunate circumstances, in part due to poor decision making.
GLP-1s, record high beef prices and the cost of living crisis generally are spoiling the appetite of Americans for burgers. All fast food chains are struggling with that. But JACK has a bunch of company-specific issues on top.
The company overdid its financial engineering efforts that worked so well in the 2010s and backfired so badly in the 2020s. They levered up too much and retired too much stock ($2.4bn between 2013 and 2024, 10x its current market cap!). They executed a major acquisition very poorly and lost 80% on the purchase price in just four years. A capital burn that would make even Silicon Valley proud.
Short sellers are smelling blood. JACK is now one of the most shorted stocks in the US. These short sellers have a problem though: The company is still profitable even during this difficult time. It’s trading at just 2x P/E. That is an actual GAAP E in the denominator by the way, can you believe it? And based on an earnings level that is depressed from cyclicality and the company’s current restructuring efforts.
I hate to say it because I don’t want to be a pumper: a major squeeze seems to be only a matter of time.
