Immersion Investments, LLC, a top 20 shareholder of Potbelly Corporation, issued an open letter to the company's Board of Directors and management team on October 21, 2024. The activist investor, holding 299,906 shares, urged immediate action to maximize value for shareholders, citing a significant discount in Potbelly's market valuation compared to its peers. Immersion Investments believes the company is an underappreciated growth story.
The letter highlighted that Potbelly's stock is priced at approximately 8x next-twelve-month EBITDA estimates, while the median valuation multiple for its publicly traded peers exceeds 12x. Immersion Investments argued that despite management's successful stewardship since July 2020, including improved shop-level revenue and margins, the share price has not kept pace with business improvements. The firm emphasized that the current valuation is more reflective of a slow-growth, highly levered company, rather than an unlevered growth company.
Immersion Investments pointed to Potbelly's robust franchise pipeline, which included 234 committed franchise locations as of June 30, 2024. These locations are projected to generate nearly $17 million in high-margin franchise revenue, potentially contributing an additional $15 million in EBITDA. The activist shareholder urged the board to aggressively pursue alternatives for value creation, including a potential sale of the company, recapitalization, or an accelerated share repurchase program.
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