Consumer holiday spending continues to rise and is projected to be a $1 trillion event in 2022. For a lot of retailers, calendar Q4 is an important part of their annual revenue stream. While the Q4 “holiday season” encompasses many celebrations like Diwali, Halloween, Thanksgiving, Kwanza, and Hanukkah, Christmas is by far the biggest revenue generator.
Spending for the holiday season will kick into high gear in a few weeks so I wanted to look at retailers whose values tend to increase during Q4 in anticipation of robust sales. I’m always looking for companies that appear to be oversold in the 2022 market reset so I combined my search to include both criterion and found two companies that should benefit from holiday sales and appear oversold.
I’m guessing that everyone knows how Party City Holdco Inc. (NASDAQ: PRTY) generates revenues. If you need to decorate for a party, or a gathering, you go to the Party City store. With over 850 retail locations in North America, and a robust ecommerce presence, the company generates over $2B in annual revenues, and their biggest quarter is October-December. In FYE 12-31-2021, 32% of their annual revenue came in during Q4.
If you didn’t already know, PRTY manufactures and distributes party goods found in over 40,000 retail outlets worldwide, including Party City stores, as well as independent party supply stores, mass merchants, grocery retailers, dollar stores and others.
Here is why I believe PRTY shares may be oversold: (price is $2.31/share as I write this)
P/E 2.09 (EPS $1.06/share ttm)
P/S .11X (market cap $264M – revenue $2.17B)
P/book 1.05 (book value mrq – $1.95/share)
If you apply the NASDAQ averages to the metrics above, you will see the potential for triple digit gains in the company’s value. With many of us looking at the pandemic in the rearview and knowing how much we like our celebrations and parties, I expect PRTY could have a great Q4 and a great FYE 2023.
Years ago, my young son gave me a teddy bear for Christmas that speaks in his own voice. I’m telling you this because I cherish that gift and he made it at Build-A-Bear Workshop, Inc. (NYSE: BBW), my next holiday-centric company that looks oversold.
BBW merchandise includes assorted styles of plush products (teddy bears) to be stuffed, pre-stuffed plush products with sounds and scents that can be added, and other novelty items. The company sells its products through its Build-A-Bear Workshop stores and e-commerce sites. As of January 29, 2022, it operated 346 stores, including 305 stores in the United States and Canada: and 41 stores in the United Kingdom and Ireland, as well as 72 franchised stores internationally, generating $437M in revenues.
Here is why I believe BBW shares may be oversold: (price is $13.26/share as I write this)
P/E 4.22 (EPS $3.12/share ttm)
P/S .49X (market cap $206M – revenue $437M)
P/book 2.25 (book value mrq – $6.40/share)
These valuation metrics fall short of the NYSE averages creating a potential for significant gains in value. BBW is also a cash producer with operating cash flow (ttm) of $20.48M and levered free cash flow (ttm) of $10.40M. BBW has a FYE of January 31, and its fiscal Q4 tends to be its largest revenue generating period.
Both PRTY and BBW have solid brands, and both are well known consumer staples. A lot of companies have struggled through the pandemic and the stock market reset this year. If you believe the equities market will rebound, now is the time to look for potential movers and both PRTY and BBW have the current holiday timing and a solid retail footing to set them up for a swing in the near term.
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