On today’s TSX Breakouts report, there are 18 stocks on the positive breakouts list (stocks with positive price momentum), and 41 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is 16 cents away from making an appearance on the positive breakouts list. With a unanimous buy call from five analysts and over 25-per-cent upside potential forecast for this small-cap growth stock, the security highlighted today is MAV Beauty Brands Inc. (MAV-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Concord, Ont.-based MAV Beauty Brands is a provider of personal care products such as shampoos, conditioners, hair and body products. The company’s products are sold worldwide in 25 countries under three core brand names: Marc Anthony True Professional, Renpure and Cake Beauty. The company expanded its product line earlier this year with the acquisition of Cake Beauty Inc. completed in January and the purchase of Renpure LLC finalized in March.
The company has a strong growth profile.
On Aug. 14, the company reported its inaugural quarterly financial results as a public company. Financial results are reported in U.S. dollars. For the second-quarter, revenue came in at $22.9-million with over 30 per cent organic, or internal, year-over-year growth. The company’s international business expanded 19 per cent year-over-year to $2.9-million. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) totaled $6.7-million, up from $5.4-million reported last year (on a pro forma basis). For 2018, management anticipates revenue will come in at between $90-million and $95-million, up from $75.7-million reported in 2017 and representing between 18.9 per cent and 25.5 per cent year-over-year growth (on a pro forma basis). Looking further out to 2020, management targets revenue will be between $145-million and $160-million and adjusted EBITDA to be between $52.5-million and $57.5-million.
On the earnings call, founder, president and chief executive officer Marc Anthony Venere stressed management’s three key objectives for the company, “Our organic growth plan focuses on three key pillars: driving market share for each brand within our existing retailers and distribution partners, cross-selling our brands, and extending our reach into new international markets.” The Chief Revenue Officer Tim Bunch highlighted the company’s global expansion opportunity stating, “There are 39 countries that we are not in that have annual hair care retail sales of more than $100-million. Our outlook in international markets is very positive as distributors are seeking to partner with MAV Beauty Brands to fill a void in their brand portfolio caused by the increased consolidation of independent brands. We have active discussions with distributors in 11 new markets.”
In addition to expected top line growth, management believes it can improve its profitability. Management aims to reduce its manufacturing costs as its production volume increases and is currently in negotiations with its manufacturing partners. In addition, the company plans to improve Renpure’s margins so that its gross margins are aligned with the Marc Anthony and Cake Beauty gross margin profiles.
Dividend policy
The company does not pay its shareholders a dividend.
Analysts’ recommendations
This small-cap stock with a market capitalization of $520-million is covered by five analysts on the Street and all five analysts have buy recommendations.
The firms providing research coverage on the company are as follows in alphabetical order: Canaccord Genuity, CIBC Capital Markets, Jefferies, Raymond James and RBC Capital Markets.
Financial forecasts
The Street is forecasting revenue of US$94-million in 2018, rising 33 per cent to US$125-million in 2019. The consensus EBITDA estimates are US$28.5-million in 2018, increasing 47 per cent to US$41.8-million in 2019. The consensus earnings per share estimates are 34 US cents in 2018 and 61 US cents in 2019.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 11.5 times the 2019 consensus estimate.
The one-year consensus target price is $17.40, suggesting there is over 25 per cent upside in the share price over the next 12 months. Individual target prices are as follows in numerical order: $15 (the low on the Street is from the analyst at Jefferies), $16, two at $17, and $22 (the high on the Street is from the analyst at Canaccord Genuity and implies the share price has 59 per cent upside potential).
Insider transaction activity
Only one insider has reported transaction activity since the company was publicly listed.
Most recently, on Aug. 30, Stephen Smith, who sits on the board of directors, purchased 500 shares at a price per share of $13.45. Days prior, on Aug. 21, Mr. Smith acquired 1,000 shares at a price per share of $13.35, initiating a portfolio position. Both trades were completed for an account in which he has control or direction over.
Chart watch
Year-to-date, the consumer staples sector has been a laggard delivering a negative price return of 4.6 per cent. Every single stock (10 members) in the S&P/TSX composite consumer staples sector index has delivered negative price returns year-to-date. Given this company’s attractive growth profile, investors wanting exposure to this sector may choose to invest in this stock.
Shares of this consumer staples stock began trading on the Toronto Stock Exchange in July. Given the brief trading history, technical analysis is of limited value.
Since the stock began trading on the TSX, the share price has traded principally between $13 and $14, and is currently at the upper end of this trading band. The share price is currently trading 15 cents below the initial public offering price of $14.
The stock can be thinly traded, potentially increasing the share price volatility. The three-month historical daily average trading volume is approximately 85,000 shares.
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.
Jennifer Dowty