- Consumers like spending on luxury furniture during good times.
- Bassett Furniture possesses a rock solid balance sheet.
- A recession may put a dent in Bassett Furniture’s growth momentum.
Furniture maker and seller Bassett Furniture (NASDAQ: NASDAQ:BSET) performed very well both fundamentally and on the stock market so far this year. The company expanded its revenue, net income and free cash flow 27%, 209% and 39%, respectively, year-over-year. So far this year, Basset Furniture's shares increased an incredible 62% year-to-date return for company shareholders vs. a decline of 5% for the S&P 500 as a whole (see chart below). Let's examine.
BSET Total Return Price data by YCharts
What's to like about Bassett Furniture?
Bassett Furniture performs well as long as the economy expands. Consumers want to invest in their houses or build new ones when times are good (see charts below). Moreover, its customizable products serve as a draw for customers. Bassett Furniture consistently expanded comparable store sales in its company owned retail units since FY 2011, meaning that established stores had no trouble building their businesses during this time.
US GDP data by YCharts
US Housing Starts data by YCharts
The company also possesses a rock solid balance sheet. In the most recent quarter, Bassett Furniture had cash and short-term investments amounting to roughly $46 million dollars. This equates to an solid 27% of stockholder's equity. This means that the company can self-finance operations during tough times as it doesn't last too long. Also, Bassett Furniture possesses long-term debt amounting to a mere 6% of stockholder's equity. In fact, total debt, which includes short-term debt and accrual liabilities only amounted 58%.
Currently, Bassett Furniture pays a prudent dividend. I like to see companies pay out less than 50% of their free cash flow in dividends in a full year. Last year, Bassett Furniture paid out 30% of its free cash flow in dividends. The company pays its shareholders $0.36 per share per year translating into a yield of 1.2%.
Bassett Furniture's decent fundamentals translated into a total return of 759% vs. 91% for the S&P 500 as a whole over the past five years (see chart below).
BSET Total Return Price data by YCharts
However, there is a significant downside to this company.
Sells luxury items
Bassett Furniture tries to set itself apart by customizing furniture to each customer's needs and wants at an affordable level. This product approach appeals to customer's individuality in home décor. It also tries to deliver within 30 days. This certainly represents a cut above your average furniture company, that shows you what it offers and the customer picks from the offering.
However, having a long-term horizon represents the best chance for stock market success. The products that Bassett Furniture sells represent luxury items. Customers can do without customized furniture when times get tough. As a result, the company's performance lags during recessions (see charts below). Bassett Furniture's revenue, profitability and free cash flow all suffered during last recession.
BSET Free Cash Flow (Annual) data by YCharts
Bassett Furniture will continue to do well as long as the economy expands. However, it is likely that the company and its shareholders will suffer mightily during an economic downturn. Moreover, the company's shares trade at a P/E ratio of 20 vs. 18 for the S&P 500, according to Morningstar, making it slightly overvalued. I may revisit this company during difficult times and if the fundamentals remain decent, I may consider it for investment. Otherwise, I am waiting for a better entry point.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.