Investidea: 1-800-Flowers, because soon 14 February

Инвестидея: 1-800-Flowers, потому что скоро 14 Февраля

Today we have a very speculative idea: take shares of the online network selling flowers and food 1-800-Flowers (NASDAQ: FLWS), in order to capitalize on the growth in demand for its services.

Growth potential and validity: 23,5% behind 14 Months; 48,5% behind 3 of the year; 129% behind 8 years.

Why stocks can go up: because it is a cheap and efficient business.

How do we act: we take shares now by 16,13 $.

When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.

No guarantees

Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.

And what is there with the author's forecasts

Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.

So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.

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Investment editorial office

What the company makes money on

FLWS is an online gift delivery service, in particular delicacies and flowers. According to the company's annual report, its revenue is divided into the following segments:

  1. Floristry - 48,29%. Sell flowers online through the company's website, and it also calculates income from franchisee operations and sales of FLWS through retail stores. Segment operating profit - 12,54% from its proceeds.
  2. Delicacies and gift baskets - 45,02%. Selling related products – not just online, but also through retail and wholesale channels. Segment operating profit - 15,63% from its proceeds.
  3. BloomNet — 6,69%. These are services for professional florists ranging from organizational - such as transaction support, receiving and delivering orders - before advertising and training, as well as wholesale of goods necessary for florists. Segment operating profit - 32,09% from its proceeds.
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In addition to the US, the company also operates in Canada., Brazil and UK, but the exact share of sales in each country is not indicated in the report. Therefore, we will think, that the company makes most of its revenue in the US.

Инвестидея: 1-800-Flowers, потому что скоро 14 Февраля

Инвестидея: 1-800-Flowers, потому что скоро 14 Февраля

Arguments in favor of the company

Fell down. The company's shares fell sharply: with 37,97 $ June 2021 to present 16,13 $. Think, we now have the opportunity to pick up these stocks in anticipation of a rebound.

Business as a miracle. Online commerce has extremely low bottom line margins in the area 1% from revenue and generally tends to be unprofitable. FLWS against this background looks like a miracle: even taking into account the not very good last quarter with increased expenses, the final FLWS margin for the past 12 months is shameless 4% from proceeds.

For comparison: from the great and terrible giant of Internet commerce Amazon operating margin of the retail segment is 1,55% from segment revenue. This alone makes FLWS an extremely interesting company.: with its small volumes, it is extremely marginal by the standards of the industry.

Cheapness. The company is very cheap.: P / E she has 11,88, P / S — 0,5, and a market capitalization of just $1.05 billion.

Online commerce. The company's business as a short, so long distances are favored by the hell of an endless pandemic, minimizing live communication: online ordering of gifts for consumers here will be more useful than ever. In a word, the farther the Normality Index is from February values 2020, the better FLWS.

Also, the halo of prospects will give these shares a charm in the eyes of rustic retail investors., and they will surely decide to pump them up.

Holidays. Coming soon 14 February - Valentine's Day. Think, that in this regard the company will be able to hope for sales growth a little more than usual, provided, that the demand for flowers and florists in the US will grow. But it is not exactly.

Can buy. Taking all of the above into account, Buying the company by someone bigger looks like a very likely option. I would even say, that this someone, logically, should be Amazon, because FLWS fits perfectly into her business scheme.

FLWS is a successful and efficient business with relatively high margins, and at the same time it does not stand like a wing from an airplane. Considering, that Amazon management is seriously considering buying unprofitable and expensive Peloton at a price in the range of 8-10 billion dollars, buying FLWS would be a much more logical addition to Amazon's core business. However, Anyone can be a buyer.

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Dividends. Their company does not pay, but if she spent at least half of her profits on dividends, you would pay 0,75 $ per share per year - which would give a shameful return 4,64% per annum. Not a fact, certainly, that the company will do it voluntarily, — but she can be forced to do so by an activist investor, dissatisfied with the fall of stocks from all-time highs.

What can get in the way

Shares fell for a reason. IN 2 quarter of fiscal 2022 - the last quarter for the company, she is already in financial 2022 - The company's revenue grew by only 7,5%, but the cost of its services - on 15,6%. Other operating expenses also rose, and operating profit fell by 28,87%. It turned out not to be, what investors expect from a “fast-growing startup”.

Considering the rising cost of logistics and labor in the US, it can be assumed, that these problems will continue to have a negative impact on the company's financial statements this year. However, would like to note, that the company is actively investing in the automation of its logistics facilities. During peak demand days last quarter, she used 40% less labor, than usual, - despite the fact that orders were processed on 30% more.

Accounting. The company has 756.378 million dollars of debt, of which 420.946 million must be repaid during the year. There is not so much money at the disposal of the company: 271 million on accounts and 77.797 million debts of counterparties. And if the debt burden continues to grow, this can scare off investors. It also reduces the likelihood of the company introducing dividends..

Seasonal growth may not happen. Considering the rising prices of everything, Americans may cut their spending on gifts this year. You should also consider the "primitivization of demand" in the United States: people now spend more on food and less on luxuries. The latter can become a kettlebell on FLWS legs, which will not allow it to increase sales and margins. By the way,, spending forecasts for Valentine's Day this year in the US - $ 23.9 billion. It's more indicators 2021 — 21.9 billion, but much less than 2020 — 27.4 billion.

Worsening problems in the consumer sector may also lead to a pestilence among florists, after all, the coronacrisis thoroughly pressed this business, and negatively affect the most marginal segment of the company's business - BloomNet.

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What's the bottom line?

Shares can be taken now by 16,13 $. And then there are the following options:

  1. wait for growth until 20 $. It's a reasonable price, given the low cost of the company, and thinking, we will reach this level in the next 14 Months;
  2. wait for growth until 24 $, which stocks were facing a collapse due to the publication of a report that disappointed investors. Think, you have to wait three years, before the FLWS returns investor favors;
  3. hold shares 8 years in anticipation of their return to price 37 $. FLWS has a fairly good development potential, in order to improve your current performance in the long run and, if not, grow into an e-commerce giant, then at least firmly take its place in the niche of online ordering gifts.

Although all the negative news is already included in the price of FLWS, small size and market volatility can make these stocks very volatile, despite the fact that it is an inexpensive and working business. It needs to be understood and accepted..

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