Grocery Outlet Holding Corp

GO Details

Grocery Outlet Holding Corp (NASDAQ: GO) is engaged in the retailing business with a high-growth, extreme value retailer in terms of quality.

Q1FY21 Results Performance (For the Period Ended April 3, 2021)

Net Sales Reduced by 1% YoY: GO has registered a 1% YoY decline in net sales to $752.5 million and comparable-store sales reduced by 8.2% as against a growth of 17.4% in the PCP.

Net Income Increased Significantly by 49.4% YoY: GO posted significant growth in its net income by 49.4% to $18.9 million and its diluted earnings per share increased to $0.19 from $0.13 in the PCP.

Financial Highlights (Source: Company Reports)

Recent Update  

Raised More Than $2.8 Million for Local Food Agencies: As per the press release dated 4^th August 2021, the company announced that its 11^th annual Independence from Hunger® Food Drive campaign garnered more than $2.8 Mn, —which is equivalent of ~1.4 Mn meals—for the families which are in need.

Results Update: The company announced financial results for the Q2 fiscal year 2021 ended 3^rd July 2021. Its net sales fell 3.5% to $775.5 Mn. GO managed to open 11 new stores, thereby, ending the quarter with 400 stores in 6 states.

Outlook

The Company has been expecting to open between 36 and 38 stores in FY 2021 with 1 closure. Notably, its capital expenditures, net of tenant improvement allowances, are anticipated to be ~$130.0 Mn for FY 2021.

Key Risks

Volatility in interest rate could impact its credit facilities, which bear variable interest rates. The pandemic outbreaks could disrupt and adversely affect its business as well as its operations and financial condition.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

The stock has been valued using EV/Sales multiple-based illustrative relative valuation and the target price reflects a rise of low double-digit (in % terms). A slight premium to EV/Sales Multiple (NTM)  (Peer Average) has been applied considering decent outlook as well as improvement in the net margin in FY 2020 on the YoY basis. The stock of the company is trading towards the 52-week lower levels, which reflects a decent opportunity for accumulation.

Considering the aforementioned factors along with its healthy liquidity position and expansion growth strategies, we give a “Buy” recommendation on the stock at the current market price of $25.330 per share, down by 2.05% on 24^th August 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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