Thursday, September 16, 2021
Wednesday, September 15, 2021
The Second Set of Fall 2021 Marquette AIM Program Student Equity Pitches/Q&A for Friday, September 17th
AIM Class of 2022 Student Equity Presentations on Friday, September 17th
Tuesday, September 14, 2021
A Small Cap Equity holding: Carriage Services, Inc. (CSV, $46.71): “Until Death Do Us Part” By: Maddy Aubry, AIM Student at Marquette University
Carriage Services, Inc. (CSV, $46.71): “Until Death Do Us Part”
By: Maddy Aubry, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Carriage Services, Inc. (NYSE:CSV) provides funeral and cemetery
products and services across the United States. The funeral segment offers
services to families related to the consultation, removal, and preparation of
remains, sale of caskets, and the use of visitation, remembrance, and transportation.
The cemetery segment provides interment rights and merchandise including makers
and outer burial containers.
• Management is looking forward to
new capital allocation opportunities related to acquisitions in 2021.
• CSV is seeing record breaking earnings.
• The outlook for the funeral and
cemetery industry will result in exciting things to come for CSV related to the
rising popularity of cremation.
• CSV is expected to outperform key
competitors over the next 3 years.
Key
points: After focusing on paying down debt in 2020 and into the beginning
of 2021, management is excited to announce that they are now able to focus on new,
more structured capital allocation framework and opportunities. Specifically,
they are looking forward to future acquisitions after completing a detailed
review and refresh of their strategic acquisition model that has been inspired
by their most recent acquisitions.
Over the last two years, CSV has
seen much transformation that has been strongly reflected in their earnings. During
that time, EBITDA has increased by nearly 70%, and, over the past twelve months,
EPS has increased by 116%. More specifically, CSV has seen record breaking earnings
so far this year. For the first half of 2021, CSV’s total revenue and EPS increased
19.3% and 83.5% respectively.
The funeral and cemetery industry,
including CSV, is focusing its efforts on new sales techniques and skillsets
that will generate success in the future. With the cremation option becoming
more popular, funeral directors can have meaningful conversations with families
and offer unique service options. With the addition of these personalized
celebrations of life, it offers opportunity to add value and continue to grow.
Management states that they are excited to gage perspective from younger
funeral directors and arrangers in terms of their mindset related to the
possibilities that come with cremation options, and they believe the upside is
tremendous.
Key competitors of Carriage
Services Inc include Service Corporation International (SCI) and Park Lawn
Corporation (PLC). Over the next three years, CSV is expected to be the fastest
growing, with the highest margin, while trading at the lowest valuation.
Specifically, CSV’s three-year EPS is expected to grow by over 100% whereas SCI’s
and PLC’s are expected to grow by about 40% and 70% respectively.
What
has the stock done lately?
After seeing a slight decline in
June and the start of a bounce back in July, CSV showed strong returns in the
month of August. CSV priced at its lowest in the first few days of July with a
price of about $34.58 but has recently reached a price high of $48.20 with a 1
month return of 26.21% and a month to date return of 1.04%.
Past
Year Performance: CSV has increased by 110.88% in value over the last
twelve months, and they are still performing strong to date. About 12 months
ago, CSV was aligned with the benchmark and seeing inconsistent activity. Over
the past 11 months, CSV has followed similar trends of the benchmark, but they
have consistently been outperforming.
Overall, Carriage Services, Inc
has been positively affected by the pandemic over the past year. While we are
all hoping the pandemic is in its final stages, it seems that CSV will continue
to provide strong returns for the remainder of the year and into next. With the
equity reaching 52-week highs and year to date returns nearing 50%, this seems
to be a holding to hang on to for a while longer.
An International Equity holding: VipShop Holdings Ltd. (VIPS, $15.67): “Not So ‘VIP’ Anymore” By: Justin Nguyen, AIM Student at Marquette University
VipShop Holdings Ltd. (VIPS, $15.67):
“Not So ‘VIP’ Anymore”
By: Justin
Nguyen, AIM Student at Marquette University
Summary
• VipShop Holdings Ltd. (NYSE:VIPS) is a Chinese online retail
platform that specializes in discount sales of products from domestic and
international partners. The company product offerings include apparel for men,
women, and children, accessories, electronic, and other lifestyle products.
• VIPS recorded a second quarter
earnings miss and provided a modest estimate YoY growth of 5-10% in Q3.
• The company is under pressure of
the Chinese government’s new regulations upon tech companies.
• President Xi Jinping’s “common
prosperity” idea presses tech tycoons to distribute wealth.
• VIPS announced a share
repurchase program in March 30, 2021 of $500 million. As of June 30, 2021, $301
million worth of ADRs have been repurchased yet share is still down almost 70% from
the all-time high in March.
Key
points: VipShop Holdings Limited was pitched and added to the AIM International
Fund in April of 2021. Since then, the company announced its Q2 earnings with
$4.6B in revenue and $227.8M in operating income, reflecting increases of 22.8%
and 18.6% YoY in respective order. However, the company provided a disappointing
revenue guidance on Q3 that only estimates growth of 5-10%. This historically
low figure was alarming as VIPS is expected to benefit from the shift towards
e-commerce due to the pandemic.
Additionally, tech and consumer
discretionary companies like VIPS are under pressure from the Chinese
government. Rules regarding unfair competition were addressed by the State
Administration for Market Regulation, some of which include the ban of fake
reviews, mishandling of consumers’ data, and abuse of market power practiced by
these firms. Further, China also imposed a ban on internet companies that could
pose data security threat from listing overseas, an action that implies more tightening
control over tech companies that would challenge VIPS’s growth.
In broader views, Beijing has been
signaling their intent to emphasize on manufacturing as the core of the economy
rather than the consumer discretionary industry. This is demonstrated through the
fact that many manufacturing firms, such as semiconductor companies, are still
strongly supported amidst regulations squeeze experienced by the tech industry.
The government is also restricting access to videogames, media, and other entertainment
platforms. Recently, President Xi Jinping emphasized “common prosperity” as a
theme for China’s growth in the future, implying the support for tech companies
like VIPS will no longer be as strong as it was in the past.
What
has the stock done lately?
VIPS was pitched and added into
the AIM fund at a price target of $34.04. The company announced its shares
repurchased program of $500M in March of 2021 when share price hit a record-high.
As of June 30, 2021, $301M of ADR has been repurchased yet the company’s
valuation still fell 70% since March. This signals a really negative view from
investors regarding the Chinese investment landscape for tech companies like
VIPS.
Past
Year Performance: VIPS has decreased 8.36% in value in the past year
and 44.65% YTD. The company may experience a slight upward trend short-term due
to share repurchase effort but reaching the all-time high in March seems
unrealistic.
My
Takeaway
Estimations indicating slow growth in addition to negative perspectives from the Chinese government are reasons why this stock should be sold from the AIM International fund. The actions implemented by China do not seem to be temporary as demonstrated through their “common prosperity” theme and emphasis on manufacturing. Thus, the investment thesis pitched may no longer hold, which indicates a sell.
A Small Cap Equity holding: B. Riley Financial, Inc. (RILY, $63.05): “The Financial Unicorn” By: Andriy Tykhonov, AIM Student at Marquette University
B. Riley Financial, Inc. (RILY, $63.05):
“The Financial Unicorn”
By: Andriy
Tykhonov, AIM Student at Marquette University
Summary
• B. Riley Financial, Inc. (NASDAQ: RILY) is a financial company that provides financial services and solutions to
private and public firms. The firm operates through six segments: Capital
Markets; Auction and Liquidation; Financial Consulting; Principal
Investments-United Online and magicJack; Brands; and Corporate and Other. The
company was founded in 1997 and is headquartered in Los Angeles, California.
• Momentum in Capital Markets
driven by government stimulus and low interest rates has benefited RILY’s
investment banking business, generating healthy earnings.
• RILY’s strong balance sheet and
lower cost of capital have helped the company focus on shareholders returning
$8.50 in common stock dividends over the last three quarters.
• B. Riley’s continuous
investments in complementary businesses, such as the acquisition of National
Holdings and 272 Capital L.P., have expanded their reach and market share.
Key
points:
B.
Riley has been on an incredible run in the past year, skyrocketing by about
139%. The big reason for this consistent growth has been an impressive
quarterly performance. In Q2 2021, RILY reported revenues of $336.8 million,
which increased year over year from $267 million. Their investment banking
activities created the earnings upside, led mainly by the capital markets and
liquidation business. The United States' economic recovery in 2021, driven by
government stimulus, low interest rates, and an increased number of persons who
received the COVID-19 vaccine, has helped the capital markets industry
tremendously. Capital is abundant in the market, which has led to an increased
number of mergers and acquisitions. In Q1 2021, the global deal volume reached
14,781 compared to pre-COVID-19 numbers in Q1 2019 with 11,276 deals. With this
trend expected to continue throughout 2021, B. Riley should have substantial
revenue in the Capital Markets segment.
The
company has strongly emphasized being shareholder-focused, as mentioned in the
initial write-up in October 2020. The same holds today with their platform
strategy; RILY built a solid balance sheet and lower cost of capital, enabling
them to return $8.50 common stock dividends over the last three quarters. In
2021, B. Riley has acquired two companies, National Holdings, and 272 Capital
L.P. National Holdings acquisition added 700 new registered reps and
approximately $20 billion to their platform. With their Wealth Management team
growing, B. Riley has unique opportunities to create a dynamic wealth
management platform due to their expanded banking opportunities, proprietary
product offerings, and differentiated capital market transactions. RILY
acquired the investment advisory business of 272 Capital L.P. in early August,
focusing on fundamental research and small-cap value. With the addition of 272
Capital, B. Riley will benefit from more capital and additional resources,
which will grow their Asset Management business and create a more diversified
source of income.
What
has the stock done lately?
Throughout the past two months,
B. Riley’s stock price has decreased by around 18%, from $76.59 to $63.05. The
stock has been volatile, with a high of $76.59 on July 6th and a low of $60.40
on August 19th, which shows a difference of 21.14%. The company’s comparable
index has not performed well, decreasing by 0.59%. One of the reasons for the
decrease in the stock price is RILY’s Q2 EPS which was $2.58 compared to a year
ago, $3.07. B. Riley’s competitors, such as Piper Sandler Companies and Moelis
& Co. Class A, have outperformed them by 10.26% and 10.57%, respectively.
Past
Year Performance:
In the last twelve months, B.
Riley has increased in value by around 139%. The 52-week high was at $77.51 and
as low as $24.60, which shows the incredible run the security has had. The
considerable increase in January was due to RILY acquiring the remaining
outstanding shares of National Holdings and an 870k common stock offering. All
other significant increases were mainly due to the company beating its
quarter's expectations. B. Riley has significantly outperformed the Russel
2000, which has grown by around 49% in the past year.
B. Riley has been an incredible
company to follow in the past twelve months due to its growth. Unfortunately,
it has been declining in the past two months even though their Q2 revenues were
up year over year. The new acquisition of 272 Capital shows promises for their
Asset Management business. RILY had a price target of $44.56 when the AIM fund
first purchased it and is currently at $63.05. While there is some positive
news for RILY looking into the future, I recommend the AIM Small Cap Fund sells
the security to capitalize on the gains.
A Small Cap Equity holding: Repligen Corporation (RGEN, $288.54): “Robust Momentum for Repligen” By: Jack Cyganiak, AIM Student at Marquette University
Repligen Corporation (RGEN, $288.54): “Robust
Momentum for Repligen”
By: Jack
Cyganiak, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Repligen Corporation (NASDAQ: RGEN) offers bioprocessing technology
and solutions used in the manufacturing process of biological drugs.
• RGEN revenue increased by 35%
YoY from 2019 to 2020.
• EPS increased over 150% YoY
from 2019 to 2020.
• RGEN acquired Polymem in June
2021, which is a leading industrial expert in developing and manufacturing
hollow fiber membranes and modules.
• Integration of EMT, NMS, and
ARTeSYM, acquisitions occurring in 2020, has gone smoothly for RGEN in the
first half of 2021
Key
points: RGEN is approaching its two-year anniversary in the AIM
Small-Cap portfolio in a couple of weeks, and it is safe to say that this stock
has been a winner. It has provided over 250% of returns since its addition into
the small cap fund, and has had a stellar performance thus far in 2021. YoY
it’s revenue in Q2 has risen 69% and EPS increasing over 128%. They have
continuously made strategic acquisitions that have added great value to the
company. And not only are they investing in other companies to help grow, RGEN
has recently signed a new lease for a 64,000 square foot facility in
Massachusetts and are building a 33,000 square foot LEAD Silver certified
building in Ireland. These Capital Expenditures are to help keep up production
with such a high demand for their products, signaling the company is still
going strong.
Their most recent acquisition
occurred at the end of the first quarter. On June 22nd, 2021, RGEN
announced their acquisition of Polymem. Polymem is a private company in
Toulouse, France. The company was founded in 1997 and is the only French
manufacturer of hollow fiber membranes for water treatment. In addition, they
also specialize in solid/liquid separation, gas separation, liquid/gas
transfer, and other bioprocessing applications. Before the acquisition, Polymem
was immerged in numerous markets including USA, Estonia, Germany, Ireland, the
Netherlands, and Sweden. This acquisition gives RGEN the opportunity to expand
their pipeline, tap into markets they have not reached yet, and expand their
presence in current markets. According the the Q2 earnings call, management
expects Polymem to add $3M in revenue in the second half of 2021.
On top of the Polymem
acquisition, RGEN has successfully finalized integrating their acquisitions
that were made in 2020. Engineered Molding Technology, ARTeSYN BioSolutions
Ireland, and Non-Metallic Solutions, Inc. were all announced in 2020, and
RGEN’s Q2 earnings call announced that they were satisfied with the first half
performance of 2021. Management emphasized that these companies have a great
fit in their bioprocessing business, and were enthused with the speed of the
integration. Management expects these acquisitions to contribute anywhere
between $43-46 million by the end of 2021.
What
has the stock done lately?
The stock is currently trading at
it’s all-time high at $286.17. Over the last 3 months, RGEN has risen nearly 61%,
which reflects the strong second quarter. They had a very solid performance in
the second quarter of 2021 with organic revenue increasing $75.5M YoY for Q2
and their EPS doubling. Also noted in the second quarter was a significant
margin expansion. All in all, this huge quarter for the company has boosted the
stock to it’s all time high.
Past Year Performance: RGEN has increased about 84% in value over the
last year, and is currently trading at its all time high. The 52-week high and
low of the stock is $138.00 – 286.75. With
the number of acquisitions RGEN has made over the last year and a half on top
of strong organic revenue growth, it is great to see this company wrap up Q3
and enter the last quarter of 2021 with strong momentum.
Repligen Corporation has been a
successful and clear leader in the bioprocessing technology field. With their
strong performance as of recently, my initial thought was sell the company from
our portfolio, collect our earnings, and create space for new winners to enter
the portfolio. However, once I read more into the company and saw all of the
moves RGEN has made with their recent acquisitions, I think there is a lot more
to come from Repligen. I recommend we hold RGEN in our AIM Small-Cap fund and
closely watch the newly added value of their recent acquisitions.
A Small Cap Equity holding: Primoris Services Corporation (PRIM, $26.43): “PRIM Looks Prime to Perform” By: Dominic Brisson, AIM Student at Marquette University
Primoris Services Corporation (PRIM, $26.43): “PRIM Looks Prime to Perform”
By: Dominic
Brisson, AIM Student at Marquette University
Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.
Summary
• Primoris Services Corporation (NASDAQ: PRIM) is an engineering and
construction company providing construction, fabrication, maintenance,
replacement, and engineered services. PRIM operates in the US where 97% of
revenues are generated with remainder coming from Canada.
• In early August, PRIM held
their Q2 ’21 earnings call and reported diluted EPS of $0.67 lower than the
consensus street estimates of $0.72 a share. In addition, PRIM logged $881.6MM
revenue for the quarter in line with the street estimates.
• PRIM reorganized their business
segments from five to three in Q1 ’21 to streamline the company’s operations
and position the company to take advantage of cross-selling opportunities.
• Through FIH, PRIM secured a
5-year MSA agreement from the Rural Digital Opportunity Fund (RDOF) where the
US aims to spend $20B+ building out rural broadband over the decade.
• PRIM’s renewables business
continues to expand, and they have $350MM in solar projects in backlog and
$900MM+ in prospective projects likely to be finalized in the coming months.
• PRIM was recently awarded a
$100MM thermal power project that will wrap up in Q2 ’22 and the revenue from
the work will be reported in the company’s Energy/Renewables segment.
• PRIM reached a new record with master
service agreement (MSA) revenue in their backlog. As of Q2 ’21, 52% of PRIM’s backlog
was MSA-based representing $1.5B in future projects.
Key
points: Through 6 months ending 6/30/21, PRIM
generated a record high $1.7B in revenues. This was impressive considering a
bad winter storm disrupted business in Texas for one week during Q1 and wet
conditions in the South and Southwest disrupted Q2. The negative effects of poor
weather conditions where PRIM has geographic revenue exposure were ultimately offset
by the Future Infrastructure Holdings (FIH) acquisition which helped PRIM generate
an additional $134MM in revenue through 6/30/21.
In Q2
’21, the Utilities segment performed well with revenue increasing 25% YoY driven
by the FIH acquisition and increased business from utility customers in
California. Gross profit as a percentage of revenue in this segment decreased
due to poor weather and costs associated with FIH. In the Energy and Renewables
segment, revenues increased 20% YoY largely due to greater activity in the
renewables space. Gross profit margins also increased from 7% to 10% YoY due to
more favorable contracts. The pipeline segment suffered with revenues decreasing
58% during Q2 YoY which was offset by higher gross margin due to multiple projects
finishing.
PRIM
finished reorganizing their business segments to better streamline their
operations and enhance cross-selling opportunities. PRIM’s new Utilities
segment now encompasses the old Utilities and Transmission & Distribution
segments and they will also report FIH’s operations in the segment. The new
Energy segment encompasses the old Power and Civil segments, and the new Pipeline
segment is unchanged. By consolidating the segments, the company believes this
will greatly enhance PRIM’s ability to capitalize on their diverse service
offerings and offer complete engineering and construction solutions to
customers.
By example, in mid-August PRIM
secured a new $100MM contract to complete the engineering, procurement, and
construction work for a 200MW thermal power in the Southwest. With this
contract, PRIM took advantage of its cross-selling opportunities as the scope
of work involves their Utilities segment (Electrical Transmission & Distribution
work) as well as the Energy and Renewables segment (Power Plant and Civil
Construction work).
With Future Infrastructure
Holdings (FIH), PRIM is positioned to benefit from continued synergies as they
integrate the business into their Utilities segment. FIH had a 20.5% gross
profit margin as of year-end 12/31/20 and they are 70% complete with the
integration and have incurred most costs associated with it. Recently, PRIM
announced FIH secured a 5 year MSA contract with the Rural Digital Opportunity
Fund to provide telecom infrastructure construction services to rural
communities in the South.
PRIM’s renewables business continues
to expand. They currently have $350MM of backlog in solar projects for 2021 and
2022. Looking ahead, they have $900MM in prospective solar projects that are
being worked on under a Limited Notice to Proceed that are expected to close in
the next 6 – 12 months. As the US continues to pursue renewable expansion through
new infrastructure bills and a greater focus on green energy, PRIM will benefit
as they help construct America’s clean energy infrastructure of the future.
What
has the stock done lately? The past 3 months have been rocky for PRIM
since the stock has been very volatile and it largely trended down. From the
period June 19, 2021 – August 19, 2021, PRIM decreased 24.1% while the Russell
2000 went down 3.5% during the same period. PRIM fell the most from June 9,
2021 – June 18, 2021, when the broader market pulled back when fears around the
Delta Variant were high. After this plummet, PRIM experienced a choppy 6 weeks
and declined greatly after missing consensus street earnings estimates by
$0.05.
Past
Year Performance: PRIM increased 37.1% in value over the past year. PRIM’s
share price increased from November with the positive vaccine news and through
mid-March while they rode the infrastructure buzz and has since declined after the
announcement of the FIH acquisition when they completed a secondary equity
offering diluting existing shareholders.
My
Takeaway
PRIM has underperformed since
being added to the AIM Small Cap Equity Fund in April ’21 and trades below our price
target of $42.33. In August, the US Senate voted on an infrastructure bill that
passed with bipartisan support, and this bill still awaits passing in the House.
Under the new bill, PRIM can benefit from the planned $110B spending on
transportation infrastructure, $65B on the electrical grid, and $65B in
spending on broadband internet access projects in rural areas. In addition,
PRIM’s relative valuation against its peer group was reevaluated. PRIM’s FY ’21E
P/E of 10.3 remains lower than the weighted peer average of 16.9. The ~40%
discount on a P/E basis is probably due to the secondary equity offering the
company made in March to pay down revolver debt and investors’ concerns
regarding PRIM’s exposure to Oil & Gas with pipelines. However, at ~10X FY
’21E earnings most downside is baked in, and the market is not rewarding PRIM
for the growing player in renewables they are, the construction role they can
play in an infrastructure focused decade, and their new presence in telecom infrastructure
through FIH. Due to the construction sector having favorable trends in
renewables and infrastructure coupled with PRIM continuing to trade below other
leading small cap construction services providers, our fund should continue holding
this position and potentially consider increasing our stake.
Monday, September 13, 2021
A Small Cap Equity holding: National Vision Holdings, Inc. (EYE $59.98): “Keeping Our EYE on the Long-Term Prize” by: Madi Daleiden, AIM Student at Marquette University
A Small Cap Equity holding: National Vision Holdings, Inc. (EYE $59.98): “Keeping Our EYE on the Long-Term Prize”
By: Madi
Daleiden, AIM Student at Marquette University
Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.
Summary
- National Vision
Holdings, Inc. (NASDAQ: EYE) is the second largest optical retailer in
the United States. There are 1,249 stores and 19 consumer websites across
5 brands. EYE operates under its Owned and Host Brand segment (77% FY20
Revenue) and Legacy brand segment (6%).
- In
2Q21, EYE’s net store count increased by 19 stores with rebounding
brick-and-mortar traffic as a possible secular tailwind through 2022.
- EYE’s
balance sheet is improving. Management is actively controlling debt
balances and thus improving LTM leverage ratios.
- Operating
margins have expanded 125% from pre-pandemic levels due to lower
optometrist costs, increased eyeglass mix, and higher eyeglass-specific
margins.
Key points:
One of EYE’s competitive
advantage versus peers is its robust store network. The store count increased 23%
since 2017 with a rolling average store success rate of 97% over the same
period. 20 new stores were added in 2Q21 alone. Store performance has also been
improving. 2Q21 adjusted comparable store sales were up 76.7% and 23.5% vs.
2Q20 and 2Q19, respectively.
E-commerce sales only made
up 12% of EYE’s 2020 revenues, so EYE is heavily exposed to traditional retail
trends. The NPD Group, a market research firm, concludes that brick-and-mortar
sales have exceeded pre-pandemic levels over the last 15 weeks ending May 15,
2021—$1.7B greater than 2020 and $400M above 2019 levels. Given its 2Q21
performance, EYE is benefitting from this return to brick-and-mortar retail. While
e-commerce will continue to be a prominent vehicle for retail, its erosion
effect on in-store sales may not be as dramatic as originally anticipated.
Furthermore, EYE’s service offerings (i.e eye exams) cannot easily or
realistically be replaced by e-commerce thus strengthening EYE’s barriers to
entry.
Considered a main risk in the original
pitch, debt has been a main focus for EYE’s management team. In 2Q21,
management voluntarily prepaid $117.4M of term loans, lowering the overall debt
balance by 16%. In June 2021, they renegotiated their credit agreement which
resulted in the removal of a 1% LIBOR floor and improved all credit tiers’ margins
by 50bps. The lower debt balances caused EYE’s LTM D/E ratio to drop to 1.00 in 2Q21 from
1.19 in 1Q21. LTM Net Debt to Adj. EBITDA dropped to 0.69 from 1.23 over the
same time period. Notably, their Moody’s credit
rating has improved to Ba2.
Margins are also a key focus of EYE’s low cost
operating model. 2Q21 operating margins were 11.9%—an 125% increase from 6.8%
in 2Q2019. Costs applicable to revenue as a percentage of net revenue also
decreased 400 bps to 42.5% over the same period. With margins expanding while
maintaining low price points, EYE is scaling successfully and fortifying
barriers to entry.
What has the stock done
lately? Since
reporting 2Q21 earnings and beating consensus on 8/12/21, the stock has rallied
19%. Reaching its new 52-week high on 8/31/21, EYE has now caught the attention
of many momentum investors; however, this run is backed by the company’s strong
fundamentals as well as consistent earnings beats.
Past Year Performance: EYE is up 20% YTD as it benefitted from the 1H21 value outperformance. Despite exceeding its estimated price target of $46.23 in November 2020, EYE’s growth story remains very much intact. Now trading at $59.96 as of 8/31/2021 market close, EYE has produced a 60% return since its addition to the portfolio.
My Takeaway
Despite the recent rally and new
52-week high, there is still room in this growth story. The company’s
fundamentals are strong and the original investment thesis remains intact.
EYE’s resilient revenues should continue as brick-and-mortar retail returns
fully in 2022 and low-cost options become more in-demand after COVID-19 stimulus
checks dry up. With less debt on the balance sheet, EYE will achieve a more
flexible model allowing increased investment in its improving operating
productivity through technology capex. With high barriers to entry like its
store network, eye exam business, and scale with expanding margins, EYE is
expected to continue delivering strong results.
