This FTSE AIM stock is down 40% in 12 months. Should I buy it now?

This Fool looks into a FTSE AIM stock that pays a dividend and looks good value for money at current levels.

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FTSE AIM stock Cake Box Holdings (LSE:CBO) has seen its shares fall in the past 12 months. Could now be a good time to pick up cheap shares? Let’s take a closer look.

Cakes and treats

As a quick reminder, Cake Box is a franchise retailer that manufactures and sells egg-free cakes. The business has grown through franchise expansion and currently has 220 outlets throughout the UK, made up of traditional storefronts and smaller kiosks.

Cake Box shares have been falling in price in the past 12 months. As I write, the shares are trading for 178p. At this time last year, the shares were trading for 302p, which is a 41% drop over a 12-month period.

To buy or not to buy?

So what are the pros and cons of me buying this stock?

FOR: Cake Box’s growth to date has been nothing short of remarkable, in my opinion. The first store opened in 2008 and the company has grown via its franchising model to 220 locations as of 31 March 2022. All of its executive directors have previously led and operated their own successful stores in the past so have experience and a vested interest in the company’s direction and overall success. It continues to open new locations and wants to continue building its presence and profile.

AGAINST: I believe Cake Box shares have been affected by macroeconomic headwinds. These issues are a real worry for me. Soaring inflation, the rising cost of materials and the supply chain crisis could have a material impact on operations, its balance sheet, and profit margins. This could affect investor returns. If profit margins are being squeezed, prices may need to rise, which could also result in a loss of custom. Cake Box is not the only AIM stock to be at the mercy of these headwinds or see its share price decline in recent months.

FOR: Cake Box has an excellent track record of performance. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that revenue and profit has grown year on year for the past four years. Full-year results for 2022 are due soon but it has already confirmed it is expecting to meet its expectations.

AGAINST: Despite impressive growth, I am wary of businesses that operate and rely heavily on the franchise model. Although there will be processes and fail safes that franchisees must abide by, there is always the risk of operational and quality standards falling. This could have an impact on performance, and eventually returns. This is something I must be wary of.

An AIM stock I’d buy

I like the look of Cake Box shares and would happily add some to my holdings. Since the shares have fallen, they look better value for money on a price-to-earnings ratio of 13. In addition to this, the shares pay a dividend that would boost my passive income stream. It is worth noting that dividends can be cancelled at any time, however.

Overall, I believe Cake Box shares could be a good long-term addition to my holdings. The business has a good track record of growth, is performing well despite macroeconomic challenges, and pays a dividend too.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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