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At Home Group - Favorable Unit Economics, Long Growth Runway, Cheap Valuation

Apr. 08, 2021 8:00 AM ETAt Home Group Inc. (HOME)11 Comments
Greystone Capital profile picture
Greystone Capital


  • At Home Group is a leading home decor retailer with a differentiated low cost business model.
  • The business survived the pandemic and emerged stronger than ever set to benefit from stay at home trends as well as the ongoing housing boom.
  • Continued execution will provide the opportunity for revenue growth and margin expansion.
  • Shares are available at a low multiple of normalized earnings power.

The At Home Group (NYSE:HOME) represents the opportunity to invest in a differentiated home decor retailer with a strong value prop and efficient business model relegated to mostly brick and mortar sales. While industry incumbents and trends in retail seem to be heading in the opposite direction in terms of strategy, At Home has found an efficient way to run brick and mortar operations by utilizing a 'self-service' shopping model, limiting employee count and being selective with their real estate. Furthermore, I believe HOME will be able to compete well against the likes of Wayfair and Amazon among others, and currently sports higher revenue growth rates, higher margins and a longer runway than peers such as TJX, Target, Ross stores and Floor & Decor. Yet despite the above, shares trade at a discount to comps on every relevant metric and are currently available for a price that appears to be too cheap for the fundamentals. If HOME can continue to execute by opening new stores, managing inventory well and keeping employee costs low, there should be the opportunity for revenue growth, margin expansion and multiple expansion moving forward.

It would be important to note that this is a business that survived the pandemic (albeit with some serious damage to the share price), turned over the shareholder base, cleaned up the balance sheet as of Q4 2021 and emerged as a stronger business post-COVID that is set to benefit from any and all stay at home trends as well as the current / ongoing housing boom. I believe the market is overly focused on things like short term margin guidance (possibly under-promised by management), with shares being heavily sold off following the company's best quarter / year end results (FY2021) since before COVID. Consensus estimates for 2022 and beyond appear to be far off from what I believe the normalized operating environment to be, and

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Greystone Capital profile picture
Greystone Capital is a long only, equity focused Registered Investment Adviser located in West Chester, PA. The firm utilizes a fundamental research process focused on identifying mispriced small and microcap securities in order to build a concentrated portfolio of high conviction investments. It’s our belief that the best investment results can be achieved by aligning interests. Greystone aims to be different from the majority of investment vehicles and large funds by providing full transparency into what we own and why we own it, and always being invested alongside clients. We strive to create value, not extract it. Greystone’s investment process is centered around patience, good decision making, and daily incremental improvement. Our aim is to compound client’s investment capital at the highest possible rates of return over long periods of time. To do that, client portfolios are managed by taking concentrated positions in small companies that are generally under-followed, misunderstood, and can be too small for large funds or passive investment vehicles to own, creating the potential for mispricings. Viewing stocks as ownership shares in businesses, we seek to own these companies for years, or until the mispricings correct. We believe this approach, executed well over long periods of time, can provide a path to stock market out performance.

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

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Comments (11)

Xxfactor profile picture
Sounds great I just wonder how popular this store really is? I've never heard of it but they may not be in my state. I wonder if the products are considered "cheap" junky stuff like walmart? I hate that type of stuff.
@Xxfactor They are like a Ross or a nice Burlington for housewares.

Minimalist environment, very good quality products if you know what to look for.

I like their pillows. Much sturdier than Wal-Mart's and about the same price.

Seasonal and year-round bric-a-brac.

Helpful customer service, at least in my local store, which is basically a requirement for me nowadays.

So many toxic store clerks now; I refuse to expose myself to that negativity. So I drive around a lot to support the jobs of those that deserve them. My local At Home is one of those places where the staff appreciates the customer. (Your milage may vary.)
bazooooka profile picture
Likely will end up a twenty bagger from one year ago. Also I hope TUES/TUEM can do similar someday from when it was trading near a buck just late last year.
HOME has been my number one holding since mid last year, added more all through last year up to $22. Option premium has high IV so there are opportunities there as well either writing CC or CSP. The key HOME is this: Low cost model, (lease costs & store opex), product differentiation where the treasure hunt matters and you cant easily compare across on-line market places, inventory and supply chain management (end of life management, seasonality, margin enhancement and sourcing). HOME hits on all these metrics. The balance sheet in one year went from a problem to a strength, so there is little risk of default and the ability to roll over high cost debt (2025- 8.75) would add it EBIT. My only concern is the rise in corporate overhead which wasn't adequately explained as either being a one time new normal to fund for growth and the on-line investments or will it continue to expand and eat into the compelling per store economics... that being said its a screaming value in the low 20's and a good value with a good return profile up through the 30's.
Xxfactor profile picture
@Patrick Longood How come you like it so much? Is it just the metrics or do you actually like shopping there?
@Xxfactor The metrics is what initially attracted me to it, but before investing I did go to two of the stores. What I saw was a low cost model, few employees, wide selection, merchandised well (prices, clean, organized to easily find stuff) and good traffic. It supported my thoughts on it.
Awesome write up and your assessment is so close to my view on HOME. I think and believe management has learned from its past mistakes in operating the business when it first came public. Tangible proof is that sales have doubled, debt has been paid down significantly, inventory management/turnover has been impressive as well as profits being at record levels today. Now they have the tailwind of the migration to home in the suburbs and lots of options for new locations and space with all the bankruptcies of large stores like JCP, Sears, Pier 1 etc. I am looking for this to have at least a market multiple once all the noise and extraordinary items shake out in the next year. Today I believe HOME should be at $40 (20 X 2.00 eps) but I can wait hoping for more of a pull back to buy even more!
Very good company trading at a badly-run business. I think a lot of people still look at this company as a 'just another garbage retailer' on the surface. They have yet to look deeper. If management execute, this could be the best multibagger (like investing in well-known companies early).
I would agree, the issue is also a pretty illiquide stock which is easily affected by short selling and see some high volatility for a retailer. Brand awareness has improved as shown by the loyalty program figures but it seems the market does not recognize this business as being on a firm growth path, more a of a small cap turnaround saved by a stay at home short term trend ... brand and investor awareness are not enough yet to anticipate targets before those are achieved, as opposed to many techs trading at prices relative to 5 years ahead projections.
The Actuarial Investor profile picture
Thanks for the write-up
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