Millennials Are Flocking to Events Put On by Sack Lunch Productions, Inc. (OTC Pink: SAKL)

The Baby Boomer population may be satisfied with traditional leisure activities, but Millennials are always seeking new kinds of entertainment. For example, Red Frog Events pioneered the Warrior Dash in 2007 to make 5k races a bit more interesting with obstacles like rock walls and flaming tunnels. In just five years, the event grew to span 35 cities with over 600,000 participants and helped revenue increase to over $85 million by 2012.

Sack Lunch Productions Inc. (OTC Pink: SAKL) is one of the only publicly traded pure-plays in the fragmented Millennial-focused event entertainment space. With events like The Lantern Fest, Slide the City, Color Me Rad, and The Dirty Dash, the company expects to generate $18 million in revenue this year and launch in both new U.S. cities and internationally. Shares have doubled over the past 12 months in response, but recent profit-taking has created an opportunity.

In this article, we will take a look at the company’s significant growth potential, compelling valuation, and why investors may want to consider buying shares.

Growth Potential

Sack Lunch Productions estimates the U.S. event driven entertainment industry to be approximately $20 billion in size. With just $10.7 million in 2015 revenue, the company is barely scratching the surface of its potential within the market. Management plans to expand its presence within the industry through a combination of organic growth and acquisitions that leverage its publicly traded status in a highly fragmented industry.

The company’s current event portfolio includes:

  • Slide the City – A 1,000-foot vinyl slide that’s placed in the center of a city to create a fun and exciting block party event for the entire family.
  • The Lantern Fest – An unforgettable nighttime party that’s lit up with thousands of lanterns lit by participants and released into the sky.
  • Color Me Rad – A 5K race where participants are coated with liquids, powders, and gels of blue, green, pink, purple, and yellow until they’re tie-dyed on every side.
  • The Dirty Dash – A mud run obstacle course where a military boot camp meets an inner five-year-old fantasy.
  • Trike Riot – A race on Razor tricycles that takes participants down city streets and through obstacles to the finish line.

On the organic growth front, the company recently closed a $5 million senior credit facility that will enable it to hold 136 corporate events and add as many as 60 projected international and 40 domestic franchised events this year. These events are expected to increase revenue by nearly 70% year over year to around $17 million and set the stage for ongoing growth. Since the events take place annually, these growth rates should compound over time.

On the acquisition front, the company roughly doubled its size last August with the savvy acquisition of Springbok, which had generated $12 million in revenue and $1.4 million in net income in 2014. The company was able to make the acquisition on extremely favorable terms after Springbok began experiencing cash flow problems. Along with revenue and net income impact, the acquisition provided the rights to several events and territories.

Compelling Value

Sack Lunch Productions differs from many microcap companies in that it’s commercial- rather than development-sage. Over the past 12 months, the company has generated $10.7 million in revenue and it expects to grow that revenue to around $17 million by the end of the year. The company also reported a modest net income over the trailing 12-month period, although it’s likely to report losses in the near-term as it invests in growth over profitability.

Currently, the company has a market capitalization of about $9.8 million, which translates to a price-sales ratio of 0.9x. This is significantly lower than the industry’s 2.0-2.4x average, according to Morningstar data. If the company’s shares were to trade with a 2.0x price-sales ratio, it would translate to a $21.4 million market capitalization that’s about 120% higher than its current valuation – and the stock would still be on the low end of the range.

The discounted valuation may be especially compelling in the context of its strong growth rates. In 2015, the company reported 121% year over year revenue growth with sales of $10.7 million. Management is projecting roughly 70% revenue growth this year to $17 million, but those figures could prove to be on the conservative side. Organic growth and acquisitions could further propel these figures higher over the coming quarters and into 2017.

Looking Ahead

Sack Lunch Productions represents a compelling microcap investment opportunity. With its high-growth business model, the company plans on growing revenue by about 70% this year and shares responded by rallying nearly 200% between January and mid-June. The profit taking over the subsequent month has created a unique opportunity for investors to get involved, particularly with a modest price-sales ratio of just 0.9x.

Over the coming quarters, the company also plans to complete an audit and become more fully compliant with regulators. The move could open the door to a potential up-listing and could encourage more institutional investors to become involved with the stock.

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Company Overview

Sack Lunch Productions Inc. (OTC Pink: SAKL) specializes in event management, film production, and distribution with a focus on domestic and international owned and franchised events. These events have become increasingly popular among the Millennial generation as an alternative form of entertainment.

The company’s core subsidiaries in the event entertainment industry include:

  • Slide the City
  • Color Me Rad
  • The Lantern Fest
  • The Dirty Dash
  • Trike Riot

The company also holds a majority interest in Green Endeavors Inc. (OTC: GRNE) that operates Aveda-licensed salons and retail locations.

Investment Highlights

Growing Industry. Sack Lunch Productions is one of the only publicly-traded companies in the rapidly growing and highly fragmented $20 billion event entertainment industry. Since acquiring Springbok in August 2015, the company has steadily grown the number of events that it hosts over time.

Expanding Revenue. Sack Lunch Productions reported revenue that increased 121% to $10.7 million in FY 2015 and anticipates reaching $18 million in revenue in FY 2016. With a $5 million credit facility in place, the company is well positioned to achieve this ambitious target through organic growth.

Roll-Up Opportunity. Sack Lunch Productions has a unique opportunity to pursue roll-up acquisitions in the event entertainment industry given its fragmented nature. Management has demonstrated its ability to successfully execute these acquisitions with the bargain purchase of its initial operations.

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