The Lovesac Company (NASDAQ:LOVE) is not your ordinary furniture company. The high-end, fashion-oriented company has grown a fantastic brand value, targeting primarily millennials who can afford non-conventional furniture pieces with a unique touch and aesthetic.
Lovesac's revenues have been growing rapidly over the years, powered by the company opening one showroom after another across the country. Lovesac keeps positioning itself to continue growing its market share, and has begun posting sustainable profits.
The stock's decline from $95.51 to around $60 over the past few months has likely formed a compelling investing opportunity. I am bullish on the stock. (See LOVE stock charts on TipRanks)
Robust Growth, Solid Future Catalysts
Lovesac's performance has been impressive quarter after quarter since its IPO, with no material signs of a potential slowdown. This was proven once again in its latest results.
Revenues grew 52.5% year-over-year to $82.9 million, beating Wall Street's expectations of $75.1 million. Sales growth was powered by various determinants (e.g., Lovesac's brand value increasing), but the most prominent and direct factor was Lovesac's location expansion.
The company now has 116 stores are open. This compared against the rather poor availability last year, as COVID-19 adversely impacted its physical locations. Specifically, Lovesac had 91 stores last year. That implies a 27.5% store growth versus the prior-year period.
Additionally, Lovesac's latest quarter marked three consecutive quarters of a positive bottom line. Since the company is focused on expanding, and reinvesting the majority of its gross profits back into the business, we should continue to expect minimal profits. Still, not losing money in the process is great in terms of avoiding shareholder dilution or higher indebtedness.
Speaking of margins, Lovesac's gross margins currently stand at 55.6%, which is quite high for a furniture company. This is due to the company's premium pricing, which is supported by successfully building its brand, and targeting high-end customers. Some of Lovesac's set-pieces can sell for as high as $10,000.
Therefore, as Lovesac scales its operations and slows down on new store openings, investors are likely to see juicy net margins as well. They could be anywhere from 15%-25% in the medium- to long-term, but certainly higher than the current percentages, which hover in the low single digits.
Since Lovesac primarily self-funds its growth, its store expansion is to be carried by its $65.7 million in cash sitting on the balance sheet. This amount may sound tiny compared to what we have been used to seeing nowadays in the large/mega-cap companies. However, keep in mind that Lovesac itself is only valued at around $915 million. Combined with its cash flow generation, Lovesac should have enough firepower to continue advancing.
The Valuation
Analysts expect Lovesac to post revenues of $434.7 million in its current fiscal year. Hence, at the stock's current price levels, Lovesac trades with a (forward) P/S multiple of just 2.6.
Considering Lovesac's rapid growth, industry-beating margins, and the stock's reasonable valuation, investors should not be surprised to see a valuation expansion soon.
Wall Street’s Take
Turning to Wall Street, Lovesac has a Strong Buy consensus rating, based on seven unanimous Buy recommendations assigned in the past three months. At $100.86, the average LOVE price target implies 71.3% upside potential.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.