Stock of the Week: You’ll Love This Beaten-Down Furniture Retailer
Alpesh Patel|August 14, 2023
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Consumers are spending. It’s good for the economy… and retail stocks…
Like this week’s Stock of the Week.
It’s a modern furniture retailer that’s been beaten down. The stock has fallen off a cliff… and the technical indicators show it’s been hugely oversold.
The last time it dropped like this… it soared sevenfold.
Sounds like an opportunity for smart investors…
The company’s been in business for 25 years and has a top-selling product line in the industry. It pulls in over half a billion dollars in revenue per year.
The forecast P/E is dirt cheap… the stock is grossly undervalued… and earnings are set up for strong growth.
Plus, it passes my proprietary Growth-Value-Income system.
I think you’re going to love this stock.
Get all the details – including the ticker – in my latest video.
Click on the image below to watch it.
Hi, friends. And welcome to another Stock of the Week.
I’ve got something slightly different for you this week, partly because I thought maybe you’d want a break from all the exciting AI stocks picks and everything going on in that sector.
So I’ve got one which is completely different from all of that.
It’s the improbably named Lovesac Company (LOVE).
My name’s Alpesh Patel, as you know. I’m the person behind GVI Investor. I’m also a hedge fund manager. Each month, my team comes across a whole bunch of companies. They analyze over 10,000 every single month. And during the course of those weeks, in between each new month, they look at the numbers of these companies.
So what have we got with Lovesac? Well, it’s a modern furniture store. My first thought was, “Are you crazy?” Well, just have a look at some of the stocks which have done incredibly well. They’re not always tech companies.
Lovesac features high-quality beanbag chairs and what are called “sactionals.” It’s obviously an American company. Sactionals consist of two combinable pieces, seats and sides, as well as custom-fit covers and accessories.
Would you believe the company has a valuation of just under half a billion dollars? And you probably didn’t even hear about it before. Just under half a billion dollars. Its revenues are over half a billion dollars.
Let’s have a look at what it is about the numbers which got my interest piqued.
First of all, on my proprietary Growth-Value-Income algorithm – which measures revenue growth, the valuation of a company, dividend yields, cash flow, momentum, all of these things – it scored a 9 out of 10. Now, anything with a 7, 8 or 9 meets my minimum threshold. This one did that.
The forecast P/E ratio is only a multiple of 14. In other words, today’s share price is only 14 times the forecast profit of the company. That’s relatively cheap. Very cheap if it was a tech company. It’s not. Still cheap for a retailer.
Now, unfortunately, cash return on capital invested is negative. As you know if you follow my GVI Investor research, we want that number – it’s a very important number. You can read more about why CROCI is so important at this link. Unfortunately, that number’s negative.
But it’s still my Stock of the Week, and there’s another reason for it.
It’s been performing not too badly. Sortino, the average return versus the risk of missing it, is 0.23 – not too bad. Volatility’s a bit higher than I normally like.
However, what partly caught my attention are two things. First of all, the price fell off an absolute cliff – and that’s perfectly fine – from highs of well over $70 right down to around the $20 mark. It’s currently recovered. And it seems to be now on a steadier upward climb.
The monthly MACD (moving average convergence/divergence), a measure of momentum, has also been in severe oversold territory and also looks like it could climb.
Now, the company did this before a couple of years ago. It declined significantly and then increased some seven- or eightfold. I’m not saying it’s necessarily going to do that.
But given that it looks about 70% undervalued… Of course, there’ll be concerns about recession, retail spending… but that seems very much incorporated in the stock price already. When you look at the discounted cash flow, it’s suggesting it’s undervalued, which gets me a little bit excited. And earnings are nevertheless forecast to grow significantly going forward.
It’s one of those where the price got battered so badly, it doesn’t deserve to be as cheap as it is, and it should see some upward action.
So hopefully you found this little “tip of the iceberg” insight useful in terms of the kinds of things we look at when we’re looking at companies.
Thank you very much.