Traeger (NYSE:COOK) is a wood pellet barbecue grill maker and its IPO was a child of the pandemic. Although the business was founded way back in the 1980's, pandemic forced people into their homes and got more people to explore cooking crafts among other things. Sales were roaring and the company took this opportunity to do its IPO. But like all the stars of the pandemic, the company had to face reality; That its business was targeting a niche segment and it would likely be nothing more than a niche segment. In this write-up, we will explore how the current market has treated Traeger, explore its outlook as a business, understand its financial health and see that this is likely to remain as a small cap company with no meaningful returns to shareholders.
The pain is real for investors as the stock is down more than 80% from its highs. Price performance has largely mirrored its earnings results which also has been bad news after bad news. Company's IPO came on the back of a profitable 2020 but immediately saw increasing losses the following year. 2022 saw declining revenues as well and all of this have contributed to decimating the stock price. There are couple of takeaways here:
Traeger came to public markets with debt that was manageable as a growing business but with declining sales and widening losses it will start to threaten the existence of the company.
At 1.47 times its book value the stock looks relatively cheap and much below sector medians but inventories contribute towards this book value and if this gets written off, it will show us a different picture. It trades at 0.75 times sales much below sector medians but this also needs to be considered under scenarios where the sales continue to decline.
When Price to Sales and Price to Book are modeled under different scenarios, a different picture starts to emerge. A picture where valuations start lining up with market medians
I rate this stock as a Strong Sell both on a short- and long-term basis as it's hard to see much upside based the company's fundamentals and outlook. Given the health of its balance sheet, its more than likely that the company will have to raise money either through more debt or through stock issuance and investors are better off staying away from this company.
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