Cramer understands that as a public company CAKE doesn’t want to raise prices too much in fear of driving customers away, which might cause it to miss the numbers. But that’s where private equity comes in. If a PE group were to take CAKE private, prices could be upped and more money could be made. A quick check of the lobby at any Cheesecake Factory could show investors that there’s plenty of demand to warrant a bump in prices.
There’s another side of the business Cramer thinks is worth a look, too. CAKE has two bakeries that supply all its cheesecakes, but 67% of its production goes to outside accounts like Costco and Sam’s Club. Cramer bets that private equity owners would try to bolster this business.
The fear of missing the numbers, which is a worry of every public company, is also holding CAKE back from spending more on advertising and expansion. Going private should remedy that, Cramer says.
There is a catch, though. CAKE’s CEO is the son of its founders, and he owns 5% of the stock. There are some big funds with ownership stakes as well. That could make a private equity takeover tough. But Cramer thinks that everyone has a price, and CAKE’s price could be a lot higher if it gets taken private – and that’s good news for investors.
Make sure you remember a key rule from the Cramer canon: Never speculate on a takeover unless the company’s fundamentals are still good. He doesn't think you have much to worry about with CAKE, though.
Bottom Line: You can’t have your cake and eat it, too, but you can buy CAKE and try to make yourself some mad money anticipating a private equity takeover.
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