*Not financial advice etc…
Below is a post I've submitted 3 months ago to r/ValueInvesting, r/stocks etc., most of the info remains unchanged and I want to update it slightly. If you've already read this before, skip to the end where there'll be an update/evaluation of what happened between the past 3 months: Did management fufil their goals? What's their latest progress etc.
I'm interested to hear what you guys think.
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OLD POST
TL;DR: price target of $2.25, $3.6, $4.5, $5 (see valuation)
Goedecker (GOED) is an e-commerce business that sells appliances and furniture in the US. A reverse merger happened in Q2 2021 which caused massive share dilution and financial misrepresentation. The legacy Goedecker acquired Appliances Connections in a deal valued at 200 million (via share dilution etc). Legacy Goedecker is not a very well managed business, making 56 million revenue in 2018 and 55 million in 2019. Appliances Connections on the other hand is the real deal, making around 300 million revenue in 2020, 540 million revenue in 2021, and currently expected 640 million revenue in 2022. https://www.appliancesconnection.com
The best part is that the management team from appliances connection moved to the current Goedecker along with the CEO and others. They have made management changes and hired new talents. More can be viewed in (https://investor.goedekers.com/overview/default.aspx) and their presentation (https://s25.q4cdn.com/225826556/files/doc_presentations/2022/05/GOED-Q1-2022-Investor-Presentation.pdf). Their CEO Albert Fouerti (https://thecorporatemagazine.com/building-a-brand-albert-fouerti-business-leader/) started Appliances Connection with his brother Elie in 1999 and is now a well established, growing e-commerce furniture and appliances retailer.
Competitors that has similar business model: Overstock, Wayfair, AJ Madison
Competitors in appliances and furniture industry: Lowes, Ikea, Home Depot, Best Buy, Sears etc.
First of all lets check out their financials:
Goedecker is a misunderstood company, with a market cap of 170 million it is not on most people (and funds) screeners, because of this it is currently severely undervalued, exacerbated by the fall in various stock indices.
Secondly, the reverse merger happened in Q2 2021 so their combined revenue and earnings are only shown for Q3 2021, Q4 2021, and Q1 2022. This means their FY2021 revenue and earnings and not a clear representation of the business since Q1 and Q2 are 'hidden' in stock screeners.
https://www.sec.gov/edgar/browse/?CIK=1810140&owner=exclude
According to the 10K, FY2021 revenue is at 362 million (doesn't include Q1 and Q2), likewise net income is at 7.6 million without taking the first half of the year in consideration. Then looking at the pro forma which:
The following unaudited pro forma results presented below (in thousands) include the effects of the AC and AG Acquisitions as if they had been consummated as of January 1, 2020, with adjustments to give effect to pro forma events that are directly attributable to the acquisitions.
Shows (proforma) FY2021 revenue is at 541 million, while net income is at 27.9 million.
Taking pro forma into account (according to earnings call transcripts and ER https://roic.ai/transcripts/GOED?y=2022&q=1), we can interpret the revenue and earnings as:
in millionsQ1 2020Q2 2020Q3 2020Q4 2020Q1 2021Q2 2021Q3 2021Q4 2021Q1 2022Revenue66.891.5102.2109.7123.7140.1141.9142.7152.8Net income2.60.8(3.2)(11.4)15.617.36.5(11.5)5.9
- I've calculated the revenue as Q3 revenue = Nine month ended proforma – six month ended proforma etc.
- Q1+Q2+Q3+Q4 = 548.4 million which doesn't add up to 541 million, this is likely variances in accounting and if anyone knows why please comment below
- The sum of FY2021 net income extracted from various 10Q pro forma accounts doesn't add up to the 27.9 million stated in the FY2021 10K. This is likely also due to accounting differences, most likely older pro forma did not take into account the loss occurred from Goedecker's side.
- The high Q1 & Q2 2021 net income is likely from tax rebates due to covid and net loss in 2020, although this is unspecified in 10-Q.
- Take the chart above with a grain of salt. However the company confirmed:
- 541 million revenue in FY2021
- 27.9 million net income in FY2021
- 370 million revenue in FY2020
- -11.2 million net loss in FY2020. (possibly used to tax harvest FY2021 Q1 and Q2 tax rebates, explaining the high numbers)
- Eitherway, take the above information only as a reference as pro forma and reverse mergers are difficult to calculate and often unaudited.
- Below are some footnotes in the FY2021 10-K which I think would help us understand some of the issues above.
Income tax benefit (expense). We had an income tax net benefit of $4.4 million for the year ended December 31, 2021, as compared to an income tax expense of $0.7 million for the year ended December 31, 2020. As a result of the Appliances Connection Acquisition, the Company is able utilize previously derived net operating losses, as it is more likely than not that the Company will be profitable. Net Income (Loss). As a result of the cumulative effect of the factors described above, we had net income of $7.7 million for the year ended December 31, 2021, which included net income of $30.6 million from Appliances Connection for the period from June 2, 2021 to December 31, 2021, as compared to a net loss of $21.6 million for the year ended December 31, 2020, an increase of $29.2 million, or 135.6%. Excluding Appliances Connection, our net loss increased by $1.4 million, or 6.3% for the year ended December 31, 2021.
Future Growth:
On the Q1-2022 Earnings Call, the CEO reiterated their Q4 target that:
We forecast high teens to low 20 sales growth for the year compared to 2021 pro forma sales and gross margins and adjusted EBITDA margins relatively flat to our 2021 full year pro forma results, which were 23.3% and 9% respectively.
With revenue of 152.8 million in Q1 2022, and their expectation of 16-22% revenue growth rate from 541 million (FY2021), we can extrapolate the revenue will likely fall somewhere between 620 to 660 million.
Analysts (only 2 lol) https://finance.yahoo.com/quote/GOED/analysis?p=GOED expects:
in millionsFY2022FY2023Revenue636 (17.6% growth)731 (15% growth)EPS est. (avg)0.210.3
As stated in Q4 and Q1 earnings call, their quarterly fill rate is at 3.5%
The definition of fill rate is the percentage of customer orders you're able to meet without running out of stock at any given time. A strong fill rate is at or near 100%, meaning you're able to fulfill all of the wholesale sales you make without stockouts, backorders, or lost sales.
Albert Fouerti in Q1 2022 Earnings call
Unfortunately, I mean, it's almost holding steady to what it was in the past, I would say Q4 of 2021. We're looking anywhere from about 63.5%, 63% of fill rate. We're still struggling with the same struggles that we had in the past. Hopefully, we're looking forward to the next Q2 or Q3 to get some type of relief in the supply chain.
Albert Fouerti on Q3 2021 Earnings call
Our historical highs anywhere from eighty five percent to ninety percent and that's really what we're trying to get to in 2022
Increasing fill rate back to even 75% will increase their sales by at least 10% which is a bonus on top of their organic e-commerce appliances/furniture sales growth.
Albert Fouerti in multiple Earnings calls
We continue to believe that we are well on the way to becoming a company with $1 billion in annual sales in the next few years
Now the juicy part… Valuation:
Currently trading at $1.6 (as of writing)
Oustanding shares = 106.4 million
Warrants (1:1) = 92.5 million (weighted-avg exercise price of $2.3 with contractual life of 4.42yrs)
- What warrants does is essentially give investors the right to purchase the share at the exercise price, the company will issue these share (dilution), however the company receives the cash which adds to their enterprise value
Assumption 1 (Pessimistic basis):
$GOED trading below weighted avg $2.3 so warrant dilution is minimal. Outstanding shares remains at 106.4 million
Net income is lower than FY2021, from 27 million –> 20 million
20/106.4 = 0.189 EPS
Assume expected revenue growth of 15% CAGR, PE of 12:
0.189*12 = $2.27 (42% upside)
Assumption 2 (bear case):
As supply chain crisis subsides, fill rate will return to 85%, revenue continuing to grow at 15-18%. Profit margins increase to 5-6% as freight cost etc. is reduced, revenue hits CEO's expectation of $1 billion.
Net income = 1,000,000,000*5.5% = 55 million
With their current authorised 25m buyback programme (blackout period ended 2 days ago), possibility reduce share dilution from warrants slightly –> 180 shares outstanding
EPS = 55/180 = 0.3
Analysts also expect 0.3 to 0.38 EPS in 2023, assuming 15 PE
0.3*15 = $4.5 (181% upside)
Analysts have a price target of $5 (low) and $8 (high)
Catalyst:
- Next quarterly report will display the correct TTM info (21Q3, 21Q4, 22Q1, 22Q2) which will help stock screeners. Also gain coverage
- $25 million authorised buyback plan that started 2 days ago due to blackout periods
- Rebranding happening 'in the next few weeks' according to the CEO
- Introduction in the russel 2000 (unlikely but may happen)
- General recovery of S&P
Risks:
- Cost of living crisis, lowering demand for appliances/furnitures and reducing revenue and earnings
- Supply chain shock lasting (or worsening) far beyond 2023 which hurts profit margins
- Recession, interest rate rising, general market downturn
- Proforma results are unaudited and hard to say whether it's correct or not, also since it was a private company, appliances connections doesn't disclose any financial statements prior to 2019.
- Risk of warrant dilution (although cash received will go towards Enterprise Value)
- Catalysts not forming (e.g. not introduced to russel 2000), S&P doesn't recover etc.
All in all I believe it's a good buy and my highest convictions based on its financials, decent future and large margin of safety
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New Updates:
Currently, $POL is at $1.52
In light of the recent inflation figures, jobs data and in my opinion, a slightly more optimistic economic view compared to 3 months ago, the fundamental business of appliances connections continues to flourish.
According to https://www.similarweb.com/website/appliancesconnection.com/#traffic, the traffic on the appliances connections website increased from 2.8M in may to 3.1M in July, showing no signs of slowing down.
Q2 Earnings Call should be within weeks and the stock's earnings run-up has begun and in my opinion, will continue. When earnings are announced we may see upwards of $2.0 to $2.2
For the past half year (and possibly more), this stock has been heavily distorted by low volume and large shorts (avg. 50-70% short). I believe this will change through the next earnings report where the YOY results will be consolidated between legacy Goedecker and Appliances Connections.
Furthermore, the new ticker has changed (POL) as addressed by the management in the last earnings call. The current website https://www.polished.com is slightly disappointing as it's still in the 'COMING SOON' stage, nonetheless, with strong financials and upcoming catalyst (earnings report), I believe it can easily hit $2 and perhaps more depending on ER.
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