Gaiam sells everything from composting equipment to yoga videos to aromatherapy products -- even installing solar systems, if you live in Colorado and California. How green is Gaiam? They have even instituted a “sustainable shipping” program that enables customers to offset the greenhouse gases caused by their deliveries by adding a donation to the Conservation Fund.
This company has spectacular growth -- after all, holistic living is not just good for you, but it is also big business. Second quarter 2006 reports showed a revenue generation of $43.2 million, an increase of 98.8% over the $21.7 million recorded in the same period last year.
Gaiam attributed this to a combination of internal growth in both the business and direct to consumer segments, as well as contributions from sales of media titles acquired from GoodTimes Entertainment in September 2005. Gaiam's Living Arts subsidiary produces video and audio tapes on yoga and other fitness arts, and sells them to companies like Target and Costco. At the end of 2005, Gaiam’s products were carried by more than 50,000 retail stores in the United States alone plus there were seven million direct buyers.
In August 2006, the Company acquired approximately 63% ownership interest in Cinema Circle, Inc. a subscription-based DVD film club featuring films with a feel good message, designed to connect "spiritual" moviegoers around the world.
On the whole this company has a ways to go before really becoming profitable. Profit margins are thin and it’s spending on investments and acquisitions. While I believe these will prove to be profitable in the longer term, the stock price has been volatile. Currently, the stock is trading at $14.00 -- about the halfway point of its 52-week range (after peaking at just under $20 this summer), and then dropping all the way down near $10 in late August. Ouch, someone got badly hurt! (Unless it was a short seller, of course).
Personally, I think this company is a winner -- the healthy lifestyle business is not just a fad, and Gaiam is a leading and quality brand in the sector. Gaiam’s direct-to-consumer sales allow them to collect a greater share of the prices. There's simply very strong revenue growth. If you can be patient you’ll see the stock price grow in the coming years as costs are cut and grow continues organically. More and more people are turning to this kind of eco-friendly lifestyle and more and more private equity firms will be looking for the perfect baby booming acquisition.
Type of stock: Consumer products and media company that offers products for people interested in an eco-friendly, holistic lifestyle.
Price target: Currently at $14, we could see more downside in the short term as this is a volatile stock and a trendy one, too. But, even at $14.00, I think it’s worth buying and holding onto. You might keep an eye on earnings announcements. Estimates for the year are over $200 million; given that the first half generated less than half of that, we could see some positive earnings reports for the third and fourth quarter giving the stock price a temporary jump. But, regardless of short term upside (or downside), I think this is one to hold onto for the long term.
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