Grocery Outlet Holding Corp. 

GO Details

Grocery Outlet Holding Corp. (NASDAQ: GO) is involved in the retail point of sales business of food and staples via a network of independently operated stores. The company has a market capitalization of ~$3.2 billion as on 10^th June 2021.

Result Performance (Q1FY21):

For Q1FY21, the company reported net sales of ~$752.5 million, down by 1.0% against Q1FY20 as a result of a decline in comparable-store sales of 8.2% on pcp basis. Adjusted EBITDA declined by 13.7% YoY to $48.8 million whereas adjusted net income for the quarter declined by 19.6% YoY to $23.1 million.  

Key Data (Source: Company Reports)

Outlook:

The business drivers of the company remain strong. While it is difficult to forecast the near-term business environment, the management of the company remains bullish for the future and continues to expand its footprint and invest in the business to deliver on its long-term growth objective. It continues to expect to open 36 to 38 stores in FY21 with one closure. It expects comparable store sales for Q2FY21 to be in negative low double-digits. Capital expenditure (net of tenant improvement allowances) is estimated at $130.0 million for FY21. 

Key Risks: 

The company is susceptible to supply chain disruptions. There is the possibility that the company may fail to identify trends and maintain a consistent level of opportunistic products and maintain an optimal product mix. With fierce competition from online grocery retailers, the company’s business and financial condition could be adversely impacted.

 Moreover, the COVID-19 pandemic scenario may lead to changing consumer policies and may give rise to extreme uncertainties.

Valuation Methodology: EV/Sales Value Multiple Based Relative Valuation (Illustrative) 

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

While remaining in a down trend, the stock has given a stronger close for the ongoing week, forming a ‘Bullish Harami’ candle on the weekly chart thereby suggesting likely bullish reversal for the stock. The technical indicator RSI with a reading around 40 suggests neutral momentum for the stock.

Going forward, the stock may have resistance around a 61.8% retracement level of $36.10 whereas support could be around the lower Bollinger band of $31.62.

Stock Recommendation:

The company’s business drivers remain strong across opportunistic supply, consumer excitement, and engagement of its independent operators. It continues to anchor itself in stable absolute performance metrics.

We have applied EV/Sales multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to peer average EV/Sales multiple (NTM basis) considering fall in the total debt as well as robust business drivers.  The stock declined by ~11.1% in 9 months. It has made a 52-week low and high of $32.07 and $48.87, respectively.

Considering the aforesaid facts and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $33.96 per share, up by 0.62% on June 10, 2021.

Technical Indicators Defined:

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Disclaimer

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