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Birks Group Is A Deep Value Gem

Mar. 08, 2021 3:33 PM ETBirks Group Inc. (BGI)23 Comments


  • The Birks Group is a top-tier jeweler flying under the radar and one of my favorite deep value opportunities of 2021.
  • Investors are encountering a unique opportunity as this company is extremely undervalued and poised to soar due to the ongoing economic reopening.
  • Most risks are related to Birks' illiquidity as the company has enough liquidity and balance sheet strength to withstand prolonged periods of distress.

All financial numbers in this article are in CAD except when noted differently.

After discussing a number of dividends opportunities this year, it is time to focus on deep value trades/investments again after my recent Marathon Oil (MRO) article resulted in a lot of requests. It is also an article I compare to the deep value play published in May of 2020 that resulted in capital gains of more than 200%. In this article, I am going to discuss what I consider to be one of the best value opportunities I have ever covered on this website. The Birks Group (NYSE:BGI) is a micro-cap opportunity, that despite an impressive YTD performance, can still be considered to be significantly undervalued. In this article, I am going to tell you why you don't want to miss this opportunity.

Birks Group Partners with BitPay to Power Bitcoin Payment | Business Wire

Source: Birks Group

A Short Overview Of The Company

The Birks Group is a leading designer of fine jewelry, timepieces, and gifts. The company operates a number of jewelry stores in Canada, with wholesale customers in North America and the United Kingdom.

Source: Birks Group Form 20-F

The company's expertise goes back all the way to 1879 when Birks' predecessor company was founded. Its rich history has moved the company well beyond being just another jewelry retailer as its brand has become a staple in Canada and beyond. This success was mainly built on the company's advanced jewelry designer skills and the fact that the company's distinct design and brand name sets it apart from its competitors.

Birks was purchased by the Borgosesia Acquisitions Corporation in 1993, a predecessor company of Regaluxe Investment S.á.r.l. Effective March 28, 2006, Regaluxe was acquired through a merger with Iniziativa S.A. As of May 31, 2007, and June 4, 2007, respectively, following a reorganization, Iniziativa, and Montrolux S.A. transferred all of the shares they respectively held in the Company to their

This article was written by

Leo Nelissen profile picture

Leo Nelissen is an analyst focusing on major economic developments related to supply chains, infrastructure, and commodities. He is a contributing author for iREIT on Alpha.

As a member of the iREIT on Alpha team, Leo aims to provide insightful analysis and actionable investment ideas, with a particular emphasis on dividend growth opportunities. Learn More.

Analyst’s Disclosure: I am/we are long BGI. 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.

This article serves the sole purpose of adding value to the research process. Always take care of your own risk management and asset allocation.

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.

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Comments (23)

The shorts are going to lose big time on this one.
OddLotRobert profile picture
Remember that the article here bulled BGI as a "value investing gem" but reality is that it is the inverse. Sure, the company has a great brand name, but for years it has been over-burdened with debt. In an environment characterized by RobinHood, Reddit, Gamestop, ARKK, and non-valuable cryptocurrencies it can be seen as a target for funds -- but only until the music stops.
Well, turns out Maison Birks ain't no Signet. Still, encouraging results despite draconian lockdowns in Quebec and Ontario. EBITDA positive for the first time in 5 years. Delisting still a risk.
Dear Leo
I’m seeing some chatter about bgi getting delisted.....thoughts in that? Thanks...
@Bgi bagholder AMEX rules says shareholder equity (Assets-Liabilities) cannot be under $4M. So either these guys pay down $1M of debt, or figure out how to increase their assets. They have until Feb 2022 to do that.
OddLotRobert profile picture

The central problem with Birks is not the lockdown, it is the overwhelming amount of debt. There simply is no way that this is a "value" investment. It is a debt-burdened company in an overall market that is priced for perfection that does not exist.
@OddLotRobert Birks paid most of its debt with the proceeds of the sales of Mayor's in 2017. It now runs on credit from Wells Fargo and Quebec taxpayers, all in favorable terms.

OddLotRobert profile picture
"The Birks Group is a top-tier jeweler flying under the radar and one of my favorite deep value opportunities of 2021." Never mind the radar, now it's flying under the waistline on its was to hitting the sewer pipe. O.K., Ben, you can drift back to rest.
@OddLotRobert It doesn't help that Canada is under a third lockdown.
OddLotRobert profile picture
Not a great day for this "value" stock. It has a wondrous portfolio of borrowing.
Around 2008 I owned this puppy at $6 and bought it all the way down to 20¢. It was easy to see scrap value at 20¢. In the $2 to $4+ range this company and its price are accidents waiting to happen.
OddLotRobert profile picture
"Bounce back" refers to some hypothetical return to some underlying value. What is at the core of BGI is debt, debt that has lasted for years and years, keeping what is a real core company at the mercy of the vicissitudes of fortune in the markets.
Back below $3 - another top up opportunity.
Leo Nelissen profile picture
@Gallen2001 Don't worry, it will bounce back hard.
EV (ex NOLs) is $124M at $4 a share (compared at $92 at $3.50 as per your calculation). Assuming the ~$17M EBITDA expectation, this makes for a 7x multiple. If we're comparing it Signet's multiple this should be $6.50 today.
The thing is: i have no real confirmation of Signet's multiple is. I've seen ranges from 14x to 65x. So, mind sharing with us how you came up with Signet's multiple?
OddLotRobert profile picture
My experience with Birks is long and deep. We first bought them heavily when as Mayors they were teetering on the very edge of bankruptcy and would have gone under without the heavy cash infusion from Birks. We held a very large position until the 2008 market chaos, at which point the price of Birks & Mayors went from $6 to the 20¢ to 25¢ range and we ended up owning 7% of their main common share class, nearly 5% of the company. Eventually we sold and donated our entire position at prices in the present range. Birks is a fine brand but with its commitment to super-leverage, whether it survives or not is not up to the company but rather to its creditors. I have little doubt that it can be driven higher in a Gamestop-type play, but buying in expectation of that is not value investing. Anyone who perceives Birks in its present form as a "deep value" stock either never has read THE INTELLIGENT INVESTOR or SECURITY ANALYSIS, or has forgotten the contents of those books. There are some deep value plays in this market, but Birks is not one of them.
bengalesq profile picture
@OddLotRobert Thanks. It seems like a lot in terms of promising expectations are already built in to the share price.
jimklawyer profile picture
BGI is at a 10 year high. The near death revenue dip was in 2017 when revenue dipped from nearly $250MM the year before to just above -0-, per SA. The leverad FCF growth high the last 5 years was in June of 2017 at about $33MM after which it dipped below zero a year later and since then the FCF numbers have been negative, as low as just below minue $10MM and gradually rising above the minus $10MM line.

On a revenue or FCF basis there's no evidence yet of a turnaround yet. The profitability and underlying metrics on SA all are negative except for gross profit margin. Although the price to sales ratio is 0.59, these metrics are all NM, which I take to mean BGI is losing money: EV/EBITDA, EV/EBIT, and Price to Cash Flow.

I've made money off most of the recommendations by @Leo Nelison

However, if this is a great deal, I'm not seeing it. But, this wouldn't be the first really good deal I passed on that later rocketed up to my amazement and someone else's amusement.
OddLotRobert profile picture
Categorizing BGI as deep value must be making Ben Graham thrash around in his grave.
@OddLotRobert I agree, just the statement that the company "managed to avoid bankruptcy" was enough to stop me from reading any further.
@Leo Nelissen If they are dependent on the "good graces" from Wells Fargo they are in deep trouble. Wells IMO will pull the plug if there is even a hint of additional problems going forward.
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