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On today’s TSX Breakouts report, there are 35 stocks on the positive breakouts list (stocks with positive price momentum), and three securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a growth stock that appears on the positive breakouts list. Year-to-date, the share price of this consumer stock has rallied 79 per cent. The company has seen rising demand for its products during the coronavirus lockdown. On Friday, the share price spiked over 12 per cent on high volume, rising ahead of its earnings release. On Wednesday, the company will be reporting its quarterly earnings results.

The security highlighted today is Goodfood Market Corp. (FOOD-T).

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A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Quebec-based Goodfood produces and delivers fresh meals kits and grocery items purchased on its website from one of its six facilities located across the country. The company has two facilities in the Greater Toronto Area, two in the Montreal area, one in Calgary, and one facility in Vancouver. Goodfood is a market leader. Management estimates the company has captured between 40 per cent and 45 per cent of the Canadian ready-to-cook market.

In terms of revenue breakdown, the majority of the company’s revenue, approximately 90 per cent, is generated from ready-to-cook fresh meal kits. The balance of its revenue comes from three streams: Goodfood branded grocery items, breakfast menu items, and ready-to-eat meals.

The company has a number of tailwinds, or near-term drivers, including:

* Upcoming earnings. The company will be releasing its third-quarter fiscal 2020 financial results before the market opens on Wednesday July 8 (the company’s fiscal year end is Aug. 31). This is the first quarter that will reflect the impact of COVID-19. The consensus revenue estimate is $81.9-million and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is anticipated to come in at a loss of $1.2-million.

In a news release on June 3, president and chief operating officer Neil Cuggy provided a brief operational update, “With the uptick in demand also came operational challenges and additional costs that have impacted our gross margin, which we were able to offset in part by our controlled marketing spend.”

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Among the challenges faced by the company are labour shortages. To address this, management has been aggressively hiring. Management has hired over 500 employees in order to meet the strong demand for its products. Higher labour costs and food costs have been additional challenges.

* Rising customer base. As of May 31, the company had 272,000 active subscribers, up 44 per cent year-over-year. During the third-quarter ended May 31, the company added 26,000 new subscribers. Management pre-announced its subscriber count for the third-quarter on June 3.

* Expanding capacity. In April, the company leased its first fulfillment center in the Greater Toronto Area. Meanwhile, the company is currently constructing a second fulfillment center in Mississauga, a 200,000 square-foot plant that is expected to be completed in 2021 by the end of the summer. In March, the company opened its new leased 84,000 square foot production facility located in the Greater Vancouver Area.

* Increasing order value. The dollar value of the average order has been rising. The company has been expanding its product offerings and has over 200 Goodfood branded (private label) grocery products now with additional branded products to be rolled out. Over the long-term, management targets the number of private label products to expand to between 3,000 and 4,000.

* Solid balance sheet. As of Feb. 29, the company had $69.5-million in cash, cash equivalents and restricted cash on its balance sheet. In Feb., the company completed a $30-million financing, issuing convertible debentures with a conversion price of $4.70 and coupon of 5.75 per cent annually. Proceeds from the recent financing will be used to fund the construction of its second fulfillment center in Mississauga, as well as to improve the company’s profitability through greater automation.

* Increased visibility. On June 22, the company was added to the S&P/TSX Smallcap Index, putting the stock on the radar screens of institutional investors with Canadian small-cap equity mandates.

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On April 8, the company released its second-quarter financial results for the period ending Feb. 29, prior to when COVID-19 restrictions were enforced. Revenue climbed to $58.8-million, up 61 per cent year-over-year. Gross margin closed to a record 30 per cent. Adjusted EBITDA came in at a loss of $2.9-million. The adjusted EBITDA margin was negative 5 per cent.

Management’s longer-term corporate objectives are to achieve an adjusted gross margin of over 45 per cent and an adjusted EBITDA margin of approximately 15 per cent.

Management owns over 40 per cent of the shares outstanding. As such, their interests are aligned with those of its shareholders.

Dividend policy

The company does not pay its shareholders a dividend.

Analysts’ recommendations

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This small-cap consumer discretionary stock with a market capitalization of $325-million is well covered by the Street. There are eight analysts that cover this company. Seven analysts have buy recommendations and one analyst (Anthony Campagna at ISS-EVA) has an “underweight” recommendation.

The firms providing research coverage on the company are: Acumen Capital, Canaccord Genuity, Desjardins Securities, Eight Capital, ISS-EVA, National Bank Financial, Raymond James, and Stifel.

Revised recommendations

Last week, two analysts revised their expectations.

* Raymond James’ Michael Glen increased his target price to $5.90 from $5.40.

* National Bank’s Ryan Li raised his target price to $5 from $4.75.

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Financial forecasts

The consensus revenue estimates are $260-million in fiscal 2020, rising 28 per cent to $334-million in fiscal 2021. The Street is forecasting adjusted EBITDA to come in at a loss of $12.5-million in fiscal 2020 and a loss of $1.9-million in fiscal 2021.

The consensus earnings forecasts have increased modestly in recent months. To illustrate, three months ago, the Street was forecasting revenue of $253-million in fiscal 2020 and $328-million in fiscal 2021. Adjusted EBITDA was anticipated to come in at a loss of $15.8-million in fiscal 2020 and a loss of $1.97-million in fiscal 2021.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-sales multiple of 0.96 times the 2021 consensus estimate. At the beginning of the year (pre-COVID), the stock was trading at an EV/sales multiple of approximately 0.5 times.

The average one-year target price is $5.59, implying the stock may be fully valued. However, target prices may be adjusted after the company reports its quarterly earnings results later this week.

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Individual target prices provided by seven analysts are as follows in numerical order: two at $5, $5.50, two at $5.75, $5.90 and $6.25 (the high on the Street is from Martin Landry at Stifel Canada).

Insider transaction activity

Year-to-date, only one insider has reported trading activity in the public market.

On April 15, Mohammed Awada, executive vice-president – head of strategic execution, sold 10,000 shares at an average price per share of approximately $3.4325 leaving 4,000 shares in this particular account.

Chart watch

Year-to-date, the share price is up an astounding 79 per cent.

Price momentum has been positive and strong for companies operating in the fresh, ready-to-cook meal kit category. For instance, Blue Apron Holdings Inc. (APRN-N), an industry peer providing meal kits to customers in the United States, has also seen its share price skyrocket once stay-at-home orders and restaurant restrictions were mandated in order to limit the spread of COVID-19. Blue Apron’s share price has rallied to over US$11 from US$2.28 as of March 13.

On Friday, Goodfood’s share price rallied 12 per cent on high volume with over 2.1-million shares traded. The three-month historical daily average trading volume is approximately 512,000 shares.

Looking at key technical resistance and support levels, the next major ceiling of resistance is around $6, and after that around $6.50. On a pullback, there is initial technical support around $5. Failing that, there is support around $4.50, near its 50-day moving average (at $4.37).

Positive BreakoutsJuly 3 close
ABT-TAbsolute Software Corp $14.12
AIM-TAimia Inc $3.21
AGI-TAlamos Gold Inc $12.75
AR-TArgonaut Gold Inc $2.98
ACQ-TAutoCanada Inc $11.02
BLDP-TBallard Power Systems Inc $24.71
BLU-TBELLUS Health Inc. $16.38
GBT-TBMTC Group Inc $8.70
BLX-TBoralex Inc $31.53
CF-TCanaccord Genuity Group Inc $7.12
CAS-TCascades Inc $14.95
CDAY-TCeridian HCM Holding Inc. $118.65
CGG-TChina Gold International Resources Corp. $0.82
DSG-TDescartes Systems Group Inc $73.62
DCBO-TDocebo Inc. $38.81
DPM-TDundee Precious Metals Inc $9.09
EMX-TEMX Royalty Corp. $3.08
ENGH-TEnghouse Systems Ltd $75.66
FOOD-TGoodfood Market Corp. $5.57
IMG-TIAMGOLD Corp $5.64
III-TImperial Metals Corp $2.20
IFP-TInterfor Corp $11.81
JWEL-TJamieson Wellness Inc. $36.76
LSPD-TLightspeed POS Inc. $37.00
LUN-TLundin Mining Corp $7.38
MAX-TMidas Gold Corp $0.79
MTL-TMullen Group Ltd $7.80
NPI-TNorthland Power Inc $34.33
PYR-TPyroGenesis Canada Inc. $3.70
ZZZ-TSleep Country Canada $17.01
SONA-TSona Nanotech Inc. $6.97
TFII-TTFI International Inc. $49.42
TSU-TTrisura Group Ltd. $65.90
UNS-TUni-Select Inc $9.00
XBC-TXebec Adsorption Inc. $4.39
Negative Breakouts
CWEB-TCharlotte's Web Holdings Inc. $5.01
HLF-THigh Liner Foods Inc $5.56
TRZ-TTransat AT Inc $5.55

Source: Bloomberg

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

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