Noble Roman’s Earnings Fall by 54%

I have previously written about Noble Roman’s (OTC BB: NROM, $1.40) and its growth strategy of selling master franchise agreements (what it calls area developer agreements) and its strategy to sell dual-branded franchises (Noble Roman’s pizza and Toscano’s subs). I can now say that this strategy has utterly failed. To those who read my previous articles this should not be a surprise. I argued that this strategy was doomed to failure back on December 2, 2007 when the stock was priced at $2.48. I later criticized management for blaming franchisees for their failures. More recently, I mocked the company’s effort to hire an investment bank to sell itself, calling the company overvalued.

Noble Roman’s continues to falter. In the most recent quarter, Noble Roman’s did not sell any area developer agreements:

In addition, included in royalties and fees were approximately $360,000 in the three-month period ended March 31, 2007 and none in the three-month period ended March 31, 2008 for the sale of Area
Development Agreements.

Furthermore, initial franchise fees were down significantly:

Approximately $466,000 and $135,500 are included in royalty and fee income for the three- month periods ended March 31, 2007 and 2008, respectively, for initial franchise fees.

In my first article criticizing Noble Roman’s, I argued that if the company’s plans completely collapsed, it would struggle to earn $1 million per year. With 1st quarter earnings of $305,000, down from $662,000 in the year ago quarter (and down from $389,000 in the 4th quarter of last year), the company could quite possibly miss even my pessimistic earnings forecast.

Considering the company’s problems, I do not believe an investment in Noble Roman’s stock or the purchase of a Noble Roman’s or Toscano’s subs franchise would be a prudent decision.

For More Information:

2007 10K
1st Quarter 2008 10Q

Disclosure: I have no position in NROM, long or short. I have a disclosure policy. All quotes above from the 1st quarter 2008 NROM 10Q. 

0 thoughts on “Noble Roman’s Earnings Fall by 54%”

  1. Have you looked at Investools (SWIM) here after this panic sell-off. I looked at the brokerage segment Think or Swim and off of conservative sales TOS is worth about $6-$8 a share not even including Investools. I was on your link to covestor it said you had a Think or Swim account. I don’t know how good they are but if they are this could be a deal here around $8.

  2. They probably represent a good value. I REALLY do not like the Investools seminars, though, so I would not invest in the company for that reason.

    I have been satisfied with TOS as a broker (although I still prefer Interactive Brokers).

  3. hi mike-

    one thing that seems to be cool about ib is that you can buy international stocks and of course cheaper commissions. i don’t know if it’s easy to value this stock, but wondering what you think of microsoft? it looks like einhorn is betting big on this stock according to the worldbeta blog.

    also, i was thinking about the market wizards book and ahmet okumus selling puts as a method of entry versus straight out buying. you think this strategy is worth it for solid value stocks perhaps?

    thanks much in advance for your thoughts.

  4. oh wait, here’s another stock my parents keep arguing with me about and i’m wondering what you think. i think home depot has limited upside and they think home depot is the bargain of the century! wondering what you think of hd?

  5. MSFT is too hard for me. The question for investors in them is whether Windows and MSFT Office will continue to dominate. I have my doubts … is pretty darned good, and Linux continues to make strides towards greater usability. That being said, there are a lot of people who know more about this field than I do.

    As to my thoughts on HD, if my pessimistic outlook on housing is correct, then it would be a bad time to buy. OTOH, it does look cheap from a valuation standpoint.

    Selling puts is not something novices should do. The risk-reward profile is not favorable (good chance of a small profit and a small chance of a huge loss).

  6. yeah, i agree on selling puts, premiums are not that big for most deep value stocks that i see.

    even though hd is cheap, i’ll probably trim a little in my parent’s account.

    one of my profs at columbia was joel greenblatt – the guy who wrote the magic formula book. he was a great guy – but his approach had some difficulty last year. wondering what you think of the magic formula and whether it has any potential?

    thanks much in advance.

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