Greystone Capital – 1847 Goedeker Inc.: Another Stellar Quarter But Declining Stock Prices

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The following segment was excerpted from this fund letter.


1847 Goedeker Inc. (GOED/GOED.WS)

I’ve provided an update on our position in Goedeker in my previous two letters, and once again, following another stellar quarter where the company grew revenues 23% YoY and 12% sequentially, shares have declined to levels below where they were trading prior to both Q421 and Q122 results. Currently, the market is treating Goedeker as if it is a distressed business headed toward bankruptcy despite operational results revealing nothing close to this.

GOED currently trades at around 3x this year’s EBITDA despite being the fastest growing appliance retailer in the public markets, with significant advantages in product selection, SEO capabilities, logistics and installation. Furthermore, operational headwinds remain in the form of lower-than-average fill rates for product, making their continued growth and strong margins that much more impressive.

Navigating the current environment will be tough for any retailer, let alone one selling large ticket items, and like many of our investments, the industry, sector and company type are very out of favor. I can’t imagine the conversation going very well where an analyst pitches GOED as a new ‘long’ to their portfolio manager (an e-commerce appliance retailer heading into a recession…). So why would we want to own it?

I believe the above dynamic is partly what has created the opportunity as GOED is still misunderstood as an industry growth story instead of a business set to potentially benefit in adverse environments while competitors struggle.

As a perpetual share taker as opposed to secular grower, appliance industry growth rates can remain flat, or even decline, and GOED should still be able to grow their top line. The company has also been able to offset cost increases, especially on the logistics side, with favorable pricing and from a cost of capital standpoint is self-funding (adjusting for recent inventory purchases to meet demand) with no need to tap the debt or equity markets.

Speaking of cost of capital, GOED was recently granted a $140 million credit facility from Bank of America, speaking to both the quality of the business and a third party’s faith in GOED’s ability to repay the loan over time. I don’t want to give the underwriters at BofA too much credit, but I doubt they would be interested in issuing a loan of this size (the amount of Goedeker’s entire market cap at the time) to a distressed business on the brink of an economic recession.

If GOED executes their original $25 million share repurchase program today, I estimate they could repurchase up to 15% of shares outstanding which would be massively accretive. Lastly, a company re-brand was recently announced where the 1847 Goedeker Inc. name will finally be retired and replaced by Polished, along with a new logo and more modern website. By the time you read this letter, shares will trade under the ticker NYSE:POL and POL.WS for the warrants. As I’ve mentioned before, the low hanging fruit continues to be addressed and I’ve been very pleased with the company’s operational execution. I added to our position during the quarter.


Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.