Goedeker's Q1 Results Confirm Positive Trajectory

May 17, 2022 2:43 PM ETPolished.com Inc. (POL)13 Comments6 Likes

Summary

  • GOED trades at 3.9x EV/EBITDA and 5x-7x earning on 2022 guidance.
  • Guidance for 2022 appears achievable if not conservative on Q1 results.
  • The company has multiple initiatives underway that could bolster growth further.
  • A share buyback could be a catalyst to push the shares higher.

Cute little baby girl dishwasher, the concept of the importance of water

Dogan Kutukcu/E+ via Getty Images

1847 Goedeker (GOED) appears an inexpensive, cash generative U.S. appliance retailer growing at over 20%. Yet the market currently applies a value multiple to the stock.

Q1 results confirmed growth of over 20% and maintained guidance for the year. This creates an attractive setup, if GOED can merely deliver on guidance for the year, the stock is inexpensive. If they can also execute on their buyback plan at something close to current valuation levels, then the stock could materially outperform.

Valuation Is Attractive

Guidance for calendar 2022 which is broadly in line with the Q1 results suggests around $650M of sales and $60M of EBITDA. That implies a valuation of around 3.9x EV/EBITDA and puts the stock on a 5x-7x P/E. As such if it can deliver on full year guidance GOED is inexpensive. Especially if growth remains at 15% or better.

Buybacks

On December 17, 2021, the company approved a $25M stock repurchase plan. To date, no stock has been repurchased. However, illustratively, if they were to execute this in full at the current price, the impact would be significant, they would repurchase almost 15 million shares, reducing the share count by 14%.

Of course, I doubt this will happen at this scale, but even a relatively small repurchase would further support upside for stockholders. It may be more likely now because the company established a $140M credit line from Bank of America earlier this month and said the following:

Goedeker intends to use the Credit Agreement to fund future strategic and corporate initiatives, including prospective growth investments, capital structure enhancements and share repurchases under its board of directors' previously authorized program.

Strategic Initiatives

The company also has a number of strategic initiatives underway that may lead to growth and margin improvements over the longer term. These include rebranding the company, building out a distribution center footprint, hiring a number of executives, a focus on B2B customers and industry partnerships such as one recently announced with Zillow.

Risks

The main risk to GOED is that growth slows. Indeed, this seems to be happening to some degree. Topline growth was 30% last year, is 20% in Q1 and could be in the high teens on full year 2022 guidance. However, GOED's valuation does not assume much in the way of growth, if anything GOED is being priced like a dying retailer, whereas its channel appears to be growing and taking share.

The other risk is that the accounting is based on pro forma numbers. 1847 Goedeker and Appliance Connect merged last year. Mergers often fail to deliver on expectations. There is some risk growth slows as the business starts to comp 'real' numbers rather than pro forma numbers which can be subject to some degree of interpretation.

There is also recession risk. Appliance sales often aren't that discretionary and can hold up well in recessions, still a weaker consumer would not be a positive for the company.

GOED does have warrants in its capital structure at $2.25/share, clearly these aren't relevant today, but could cap some upside in the more bullish scenarios.

Conclusion

GOED appears to be a very inexpensive stock with very little assumed in the valuation. Yet the company is growing at over 20% on Q1 earnings and if they were to buy back shares in any size that may help the valuation further. The recent raising of $140M of credit from Bank of America is a further vote of confidence in the company. While there is some macroeconomic and execution risk, this appears more than priced into GOED at current levels.

This article was written by

Value-oriented ideas and special situations, generally mid/small cap. Also, orphaned and unfashionable investment ideas, ideally with a catalyst and the prospect of asymmetric upside/downside payoffs. Contrarian tendencies. To some extent I'll go anywhere if it's cheap and I'm more influenced by momentum and quality than I used to be.
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Disclosure: I/we have a beneficial long position in the shares of GOED either through stock ownership, options, or other derivatives. 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.

Additional disclosure: Not intended as investment advice. Do your own research. Investing involves material risk of loss. Opinions only which may be inaccurate.

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