Opinions
Don Lato
Roots
ROOT-T
TOP PICK
Jan 25, 2018
$11.710
Stock price when the opinion was issued
Consumer Products
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TOP PICK
The buying opportunity came after their Q1 report where they blamed bad weather for poor sales. Otherwise, the quarter was solid: over 6% same-store sales growth, gross margins increased and they're expanding in the U.S. gradually--about to open a store in Boston. Well-managed. They have a great online presence, so there's also growth here. (Analysts' price target: $15.06)
Consumer Products
DON'T BUY
It's a case on not buying stocks at an IPO. IPO expectations were too high, and Roots has struggled since then. There are forecasts that in 2020 it will earn 73-cents a share vs. 90 cents at the IPO. Managers overpromised at the IPO, so the stock got punished. It trades at 5.6x enterprise value to EBITDA, lower than its peers. But he fears that expectations are still wildly unrealistic. Doesn't see 49% earnings growth in a time when sales are moderating.
Consumer Products
TOP PICK
A plummet in shares last week. But it has a very good brand and he believes a positive catalyst of some sort will happen, like someone will buy it. This is a speculative buy. Expect more pressure because of tax-loss selling, but then it can only go up. (Analysts’ price target is $5.44)
Consumer Products
PAST TOP PICK
(A Top Pick Jun 27/18, Down 63%) A disappointing performer, but he still holds it. Same store sales plunged last year following the completion of Canada 150 sales. It is still profitable, although it always loses money in Q1. An iconic brand and is expanding slowly into the US. He would be a buyer if he wasn't already an owner.
Consumer Products
DON'T BUY
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It suffered after the IPO. He Poo-Poo’ed it last time and then a week later he read a great report. The argument was that new management would ring out better efficiency. They are down 23% in SKUs. It gives you a lower quantity of merchandise and you buy more from suppliers. Less is more. They do a fair online business in the US. There is potential to expand down there further down the road. (Analysts’ target: $14.00).