Aritzia Inc.

Aritzia Inc (TSX: ATZ) is an integrated design house of exclusive fashion brands. It designs apparel and accessories for its collection of exclusive brands and sells them under the Aritzia banner. 

Why Should Investors Book Profit?

• Increase in Leverage: The company’s debt to equity ratio at the end of May 2021 stood at 1.51x higher than the industry median of 0.51x. This implies higher balance sheet risks. Additionally, it’s Net Debt/EBITDA ratio stood at 6.93x whereas industry median is of 2.62x.
• Poor Liquidity Profile: In Q1 2022, the company's current ratio was 1.18x, compared to the industry median of 1.46x. The ratio fell from the previous quarter, indicating that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication. Even its Cash Cycle (Days) is higher compared to industry, implying the company takes more days to convert its inventory to cash.
• Stretched Valuation: ATZ shares are available at an NTM EV/Sales multiple of 3.5x compared to the industry (Consumer Cyclicals) median of 1.3x. This implies that the shares are overvalued against the industry. The matrix below reflects that the company is overvalued against the industry on many multiples.

• Trading above the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and now it has moved above the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation.

Technical Analysis Chart, Source: REFINITIV, Analysis by Kalkine Group

Stock recommendation

18 boutiques were temporarily shuttered at the start of the quarter. The closure of 50% of its boutiques in Canada for about two-thirds of the first quarter continued to have an impact on retail revenue. Moreover, thirty-three shops remained temporarily closed at the end of the first quarter. Additionally, the group’s higher debt to equity ratio along higher Cash Cycle days against the industry raises serious concerns. Furthermore, the stock is trading on the stretched valuations against industry on many fronts. Therefore, based on the above rationale, we recommend a “Sell” rating on the stock at the closing price of CAD 39.25 on August 10, 2021. 

HIVE Blockchain Technologies Ltd

HIVE Blockchain Technologies Ltd (TSXV: HIVE) is in the business of providing infrastructure solutions in the blockchain industry, including the mining of digital currencies. Its projects include Iceland Cryptocurrency Mining Project.

Why Should Investors Book Profit?

• Supply chain disruptions: Equipment providers have a detrimental impact on the market. Bitmain, which is the industry's leading provider of Bitcoin mining equipment, is still experiencing manufacturing and delivery delays. If prices continue to grow, network difficulties may increase considerably in the future.
• Price volatility could spoil the mood: The company's operations are subject to considerable risk from global financial markets as well as price volatility in the digital currency industry. Furthermore, the firm may experience network hash rate instability, which might affect the group's mining expenses.
• Stretched Valuation: HIVE shares are available at an NTM EV/Sales multiple of 8.46x compared to the industry median of 5.8x. This implies that HIVE shares are extremely overvalued against the industry.
• Trading above the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and now it has moved above the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

Despite a fall in the amount of Ethereum coins mined this quarter, the group's Bitcoin activities doubled, assisting the firm in reporting record peaks in sales and cash flow. However, at present the equipment suppliers are effecting the market negatively and it is possible that network difficulty may rise significantly in the future if prices continue to rise. Furthermore, the company is trading at overvalued levels compared to the industry, and technical indications point to a possible price correction or consolidation. As a result, we recommend a “Sell” rating on the stock at the closing price of CAD 3.9 on August 10, 2021, based on the aforementioned rationale and valuation.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.