After reporting its 3rd quarter last week, the share price has fallen off a cliff. Currently, the market cap appears to be less than $60 million. Considering that sales should exceed $84 million this year, and EBITDA should surpass $8 million for the full year, shares are trading at less than 8x EBITDA. The company was inline with my expectations on EBITDA for Q3 at $2.7 million and ahead of forecasts regarding sales. Margins were a little weaker, although this trend should be reversed as the Company rolls out its vertical ad network. Three things are important to this stock:
1. 70% of its revenue comes from long-term contracts with PGCs.
2. Motherhood is not sensitive to economic swings - neither is household decision-making influence.
3. Company is likely to continue to jettison its money losing e-commerce properties. This is likely to help improve profit margins going forward - especially as the ad network expands.
I am looking at about $95 million in sales next year and between $15 million and $16 million in EBITDA.
This stock appears to be really undervalued at this point considering that its forecasted EBITDA is likely to nearly double. Worst case, the stock should be worth $0.80 in 12 months if the multiples remain contracted as they are. If multiples for the stock were to improve to 10x (which is still slightly below the sector performance), then we could see the stock worth $1.10 to $1.20 in twelve months, inferring nearly a triple from these current prices.
I do not own KAB.TO shares, nor do I receive any financial compensation from the Company.
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