The Rocky Mountain Chocolate Factory, Inc. (NASDAQ: RMCF) is appealing to more than just candy fans. This small-cap chocolate factory has built up a steady stream of business over the past few years and its starting to draw in investors. Over the past year, Rocky Mountain’s share price is up nearly 40 percent. While the chocolate industry tends to be dominated by enormous, multinational companies like Hershey Co. (NYSE: HSY) and Mondelez International, Inc. (NASDAQ: MDLZ), the Rocky Mountain Chocolate Factory has managed to carve out a nice little market for itself.
Since its launch, Rocky Mountain has steadily expanded from its initial market of Colorado into locations across American and the world. They now have stores in 40 states and also in Canada, Japan, and the United Arab Emirates. During the last ten years of expansion, Rocky Mountain was able to average a solid 6 percent growth rate; not bad considering this period included the worst recession since the Great Depression.
Looking forward, Rocky Mountain seems set to get even larger. The company is preparing to launch new stores across Asia including high-growth markets like China, South Korea, and other parts of Southeast Asia. If Rocky Mountain opens stores in these areas while continuing to spread across the United States, analysts expect it could grow its revenues by as much as 30 percent a year going forward.
Rocky Mountain also has solid looking margins. The company has a healthy 16.7 percent operating margin and 7.47 percent profit margin. Rocky should be able to maintain these decent margins as it expands because it is not in a high cost industry. To keep expanding, Rocky doesn’t need to spend a fortune on research or new technology, but it just might need to add a few more assembly lines.
Because of these low expenses, Rocky tends to accumulate cash each year. The company has no debt and holds about $3.5 million in cash reserves. It’s been distributing this extra money to shareholders. Over the past ten years, Rocky has increased its dividend by over 300 percent. Most recently, Rocky paid a dividend of $0.43 per share.
This company does have a couple issues that investors should be aware of. While Rocky Mountain’s small size makes it attractive as an investment, it could also be Rocky’s biggest liability. Right now Rocky runs both its main operations and manufacturing out of one location in Colorado. If a fire or other disaster damaged this site, it could seriously set back company production. In addition, Rocky is a very new player in the chocolate industry and could run into roadblocks due to rapid expansion. Competitors like Hershey, Mondelez, and Nestle (OTC: NSRGY) have been around for decades longer so they may be better prepared to handle market swings than Rocky; a concern if the world economy collapses in the near future.
However, beyond these minor problems, Rocky Mountain offers a pretty attractive set up. It has great growth potential, a solid balance sheet, and no looming expenses to deal with. Chocolate is also a pretty easy industry to understand so investors don’t have to worry about any hidden surprises. Rocky Mountain looks set to become a household name, if it isn’t one already in your neighborhood.