Goodfood Market Corp

Goodfood Market Corp (TSX: FOOD) is a leading online grocery company in Canada, delivering fresh meal solutions and grocery items that make it easy for members from across Canada to enjoy delicious meals at home every day through its online platform.

Key highlights

• Launched On-Demand Delivery and Alcohol Delivery: Recently, the company reported the launched of the on-demand quick delivery to key highly dense neighborhoods in Montreal. The service is available through its new micro-fulfilment centre in the city’s downtown and will deliver orders to customers in approximately thirty minutes. Additional to this, FOOD has also launched the delivery of alcohol in Toronto through its existing micro-fulfilment centre.
• RSI hovering at an oversold zone: On a daily chart, the 14-days RSI of FR stock is hovering at an oversold zone of 41.92, which indicates a possible upside from the current level. Moreover, the stock of FOOD is trading near the lower range of the 20-days Bollinger band, which also indicates a probable price appreciation.

Technical Price Chart (as on December 30, 2021). Source: REFINITIV, Analysis by Kalkine Group

• Improved working capital management: At the end of Q3FY21, the group reported its quick ratio and current ratio of 2.09x and 2.31x, respectively, higher than the industry median of 1.30x and 1.87x, respectively. Moreover, the company reported a positive cash conversion period of 27.5 days, as compared to the negative industry median of 21.1 days. The above indicates higher operational efficiency and prudent capital management.

Risks: The group witnessed a surge in the input costs due to a surge in the company’s wages and salaries coupled with higher operational expenses due to expansion of the company’s distribution network. Continuation of the above trend is likely to weigh high on the company’s cash flows and margins.

FY21 Financial Highlights:

• FOOD reported revenue of CAD 379.234 million, jumped 33% on y-o-y basis. This was supported by increase in average basket size and order frequency coupled with a larger subscriber base.
• Gross profit stood at CAD 116.094 million, as compared to CAD 86.419 million in pcp. The increase was supported by higher sales, partially offset by increase in cost of goods sold.
• The period was marked by higher Selling, general & administrative expenses primarily due to higher wages and salaries resulting from the expansion of the management team and related administrative functions. However, a lower net finance costs supported the company’s performance.
• Net loss widened to CAD 31.792 million from CAD 5.341 million in pcp.

FY21 Income Statement Highlights (Source: Company Report) 

Valuation Methodology (Illustrative) EV to Sales Based

 Source: Analysis by KalKine Solutions 

Stock Recommendation:

The online grocery segment has gained traction in the recent past, supported by change in consumer preference. Notably, at the end of August 2021, the company reported active subscribers of 298,000, improved 6% on y-o-y basis. Continuation of the above trend is likely to support the company’s upcoming performance. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms) upside. For the said purposes, we have considered peers like H2O Innovation Inc, 5N Plus Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of FOOD at the last traded price of CAD 4.13 on December 30, 2021. 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

Technical Summary Analysis

One-Year Technical Price Chart (as on December 30, 2021). Source: REFINITIV, Analysis by Kalkine Group

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