Small Cap Success Stories: BJ's Restaurants, Inc.

Jacob Harper  |

A sad truth of the free market is that penny stocks rarely make it big. The transition from micro-cap to even small-cap is a difficult one indeed, as overcoming the hurdles of undercapitalization, competition, and lack of name recognition often prove too difficult to overcome.

But occasionally a micro-cap (defined as having market capitalization under $50 million) can overcome the odds and become a bonafide player. And for investors that get in on the ground floor, microcap stocks can be insanely profitable.

Beer n' pizza chain BJ’s Restaurant Inc. (BJRI) first went public on October 10, 1996 at $5 a share with a $.25 warrant. The stock almost immediately tanked, and languished under $2 a share until late 2000, when it began slowly yet steadily climbing. By 2011 it had broken $50 a share, and had become an unmitigated success.

Today, the chain spreads out across the Western half of the US, has over 138 locations in 15 states, and is worth nearly a billion dollars.

BJ’s was founded in 1978 under the name Chicago Pizza and Brewery Inc. in Orange County, California. In 1991 Paul Motenko and Jerry Hennessy bought the company and expanded the menu past Chicago deep-dish pizza and emphasized the brewery aspect of the company. By 1996 the company had expanded to seven locations between LA and San Diego, and began making plans to go public. They bought out 26 locations of rival chain Pietro’s Pizza, and began expanding aggressively.

After the IPO, the company struggled to grow. At its absolutely lowest, the stock dipped down to $1 a share. But after struggling to break the $2 barrier for four years, things started to catch. The local brewery revolution that was taking hold in America spurred the company on, and Chicago Brewery and Pizza broadened its appeal past Chicago pizza and microbrew aficionados to rope in a more mainstream audience.

By 2001 the stock was showing signs of life, and BJ’s increased revenues to $64.683 million on the year, an over 70 percent increase from 1999.

To take the next leap in growth, the company had to do something very similar to what Panera Bread Co (PNRA) did when they began rapidly expanding: shed the region-specific name.

Panera bought St. Louis Bread Company in 1993, and many of their early locations carried this name (in fact, Panera locations in the St. Louis area still retain the moniker.) But when Panera began eyeing the national stage, they knew they needed a name that was less region-specific than St. Louis Bread. To cater to a wider audience, the company began rebranding many existing locations as Panera, and quit opening stores with the Missouri city's name.

Chicago pizza or no, Chicago Brewery and Pizza realized they too had to shed this region-specific name to broaden their appeal. The company officially switched to BJ’s Restaurant and Brewery Inc. in Aug. 2004. Their Pietro’s locations had already gone under this new name, and changing the corporate name solidified the transition.

From 2006 to 2009, the company increased their presence from 44 to 92 locations, and increased sales from $178 million to $426 million. The stock leapt acordingly, and for a time the company was worth over $1.2 billion. BJs had officially become a major success.

Though the stock is down from its high in 2011, the company is still valued at $918 million. For the year, it’s down 2.09 percent  to hit $32.56 a share.

While the company has been in a rough patch, they’re still expanding, and six out of 18 analysts still hold the stock at a "Strong Buy" or "Buy," with none giving a negative assessment.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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