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Charles & Colvard: A Turnaround Value Stock Worth Looking At

Jun. 11, 2019 7:30 AM ETCharles & Colvard, Ltd. (CTHR)16 Comments
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  • CHARLES & COLVARD (CTHR) has enacted an excellent turnaround strategy that has seen the firm produce notable profits in the past 3 quarters.
  • CTHR is taking advantage of eCommerce and international sales to greatly increase their total sales.
  • We see 72% potential upside in this stock with the firm trading at a more reasonable P/E close to its industry.

Investment Thesis

CHARLES & COLVARD (NASDAQ:CTHR) is an attractive investment at current levels due to a rapid increase in revenue, led by improved international sales, a great increase in eCommerce sales and a solid marketing effort by the company.

CTHR is poised to take advantage of long term positive eCommerce trends. The company is rapidly increasing earnings and gross margins. There was net income of $810,000 in Q3 2019, in comparison to close to a ~$600,000 loss in the quarter in the year before. Gross margin was 47% this quarter in comparison to 37% a year ago. This is the result of increased efficiencies in the supply chain.

Company Overview/Background

CTHR was founded in North Carolina in 1995. The firm manufacturers, markets and distributes 'Charles & Colvard Created Moissanite.' Charles & Colvard creates maisonette jewellery in their lab.

The jewellery is sold through two segments:

  • online channels (53%)
  • wholesale, retail and television customers (47%)

The online channels include their own website, e-commerce outlets, marketplaces such as Amazon and eBay and other dropshipping customers. CTHR is the only maker of patented Moissanite worldwide with the market set to grow from $25.5 million in 2014 to $48.83 million by 2025. This represents a CAGR of 6.2%.

Moissanite is up to 90% cheaper than a diamond of the same type of appearance. A 1 carrot diamond costing $4000 would be $400 for a 1 carrot moissanite. This highlights the value that customers get in buying the product. CTHR produces this rare gemstone themselves in a lab, with silicon carbide.

McKinsey & Company by 2020 see the online jewellery market to reach $45 billion in sales (15% of the global jewellery market). Global online fine jewellery is set to reach $30 billion of the overall global jewellery market. The lab-created gemstone opportunity that CTHR produces is expected to reach $8 billion in

This article was written by

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Articles from now on will be:Value & Growth Ideas in the Consumer Goods SectorExperience:- Building an eCommerce Consumer Goods Company (Cosmetics - Direct to Consumer)- Previous BIG 4 Audit Experience- Bsc in Accounting & Finance at the Number 1 Business School in Europe

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.

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