Take it Private! Big Apple Bagels

Take it Private! is a new series looking at one company each week that, in my opinion, has no reason for being public. To find these companies, I screen for the following:

• High insider ownership
• A history of solid profitability
• A paltry Price/Earnings and/or Price/Cash Flow multiple, combined with a reasonable Price/Book ratio
• A stagnant stock price accompanied by low volume indicating a lack of interest in the stock

My purpose in highlighting these companies? This screen can be a good way to find deep value stocks, especially companies that may be attractive to a strategic buyer, private equity firm or management-led buyout at a premium to the current share price. However, these profiles should not be interpreted as a recommendation to buy a certain stock. For the second week, let's take a look at BAB, Inc. (OTC BB: BABB).

A word of warning: given its status as a bulletin board stock with a $7 million market cap and less than $4 thousand worth of shares trading hands on any given day, BAB Inc. is probably an inappropriate investment for the vast majority of investors. Nevertheless, it is the company's size and lack of trading liquidity that makes it a great fit for the Take it Private! series.

BAB Inc. is the parent company of breakfast franchise concepts Big Apple Bagels and My Favorite Muffin, along with Brewster's Coffee, which is served at those two stores. With just one company-owned prototype store, BAB Inc. has 126 franchised locations. The company is solidly profitable and the shares currently pay a dividend yield of more than 8%, and it appears to be sustainable.

Here's where it gets interesting: insiders own 48.72% of the stock, giving Big Apple Bagels an absurdly small float for a public company. Given that, the public company expenses alone make this an ideal candidate for a management-led going-private transaction. To tell you the truth, I'm amazed that this company is public at all.