Immersion Investment Partners, an investment management company, released its fourth quarter 2023 investor letter. A copy of the same can be downloaded here. The fund returned 34.69% in 2023 vs. 16.93% for the Russell 2000 Index. The fund returned 13.62% in the fourth quarter compared to 14.04% for the index. In addition, you can check the top 5 holdings of the fund to know its best picks in 2023.
Immersion Investment Partners featured stocks such as Potbelly Corporation (NASDAQ:PBPB) in the fourth quarter 2023 investor letter. Based in Chicago, Illinois, Potbelly Corporation (NASDAQ:PBPB) owns and operates Potbelly sandwich restaurants. On February 16, 2024, Potbelly Corporation (NASDAQ:PBPB) stock closed at $12.52 per share. One-month return of Potbelly Corporation (NASDAQ:PBPB) was -3.06%, and its shares gained 64.74% of their value over the last 52 weeks. Potbelly Corporation (NASDAQ:PBPB) has a market capitalization of $367.572 million.
Immersion Investment Partners stated the following regarding Potbelly Corporation (NASDAQ:PBPB) in its fourth quarter 2023 investor letter:
“Potbelly Corporation (NASDAQ:PBPB) continues to execute on its turnaround with a new management team led by former Wendy’s COO Bob Wright. In November, the company reported strong third quarter results, handily beating the company’s restaurant-level and EBITDA guidance provided on the second quarter earnings release. With each location averaging $1.3 million in annual sales and nearing mid-teens store-level operating margins, both of which are best-in-class for sandwich concepts, we believe that the brand is extremely well-positioned to attract high-quality franchisees. To that end, Potbelly announced 150 total location commitments in its third quarter earnings press release. Shortly thereafter, Potbelly announced a 13-restaurant deal in the Seattle-Tacoma area. On January 8, the company announced preliminary fourth quarter results, again beating the company’s guidance. Simultaneously, they updated the new location commitment figure to 192. Based solely on current commitments and the existing estate, we see line of sight to $40 million of EBITDA and over $1.00 in free cash flow per share vs. a current enterprise value of $350 million and share price of $12.50.
The investment narrative surrounding Potbelly is rapidly shifting from one of a low-end, regional company-operated concept to a fast-growing, franchised business with national scale. Despite the terrific progress on the turnaround, which includes eight consecutive quarters of beating guidance, right sizing the chain’s unit economics, and accelerating franchise development, Potbelly still trades at a discount to its peers, none of which can match it in terms of forward-looking franchise unit growth. The one exception is Wingstop, the leading SMID-cap restaurant concept, which trades for a sky-high 55x EBITDA vs. Potbelly at 11x EBITDA. Potbelly has miles to go before anyone would be willing to assign a Wingstop-type multiple (if ever) but at a minimum, execution to date merits at least a peer multiple, if not a slight premium. Until such a time passes, we foresee roughly 20% annual growth in free cash flow per share.”
A chef in a busy kitchen, adding the finishing touches to a signature sandwich.
Potbelly Corporation (NASDAQ:PBPB) is not on our list of 30 Most Popular Stocks Among Hedge Funds. At the end of the fourth quarter, Potbelly Corporation (NASDAQ:PBPB) was held by 10 hedge fund portfolios, down from 12 in the previous quarter, according to our database.
We discussed Potbelly Corporation (NASDAQ:PBPB) in another article and shared Immersion Investment Partners’ views on the company. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.