Description

Disclaimer: Our firm has a position in GOED equity and warrants

Summary

We think that at $2.25/share, GOED has the potential to be a 2-3 bagger that is highly actionable right now. In GOED, you can buy an underfollowed appliances ecommerce company that was EBITDA margin positive even pre-Covid at 4.8x 1Q’21 annualized EBITDA (4x if you exclude negative EBITDA contribution from legacy GOED business). Moreover, the stock trades at 8x management’s 2021E EBITDA guide given in November 2020, before blow out results in 1Q’21 (1Q’21 EBITDA was 40% of full year guide). We see this stock worth $5-6 at 20-30x 2021 EBITDA (and still at a discount to W and OSTK).

Opportunity exists as stock has fallen from $14/share to $2/share as the company recently issued over 90% of their PF share count to acquire Appliances Connection. While obviously not great the business issued 9x their pre-June shares outstanding to acquire Appliances Connection, there are likely some technical issues pushing down the stock price (ie deal was hard to get done, new equity holders each got a warrant to acquire more shares and many shareholders sold immediately post deal and are holding the free warrant). Moreover, the stock is under followed and has been a crappy business until it just acquired Appliances Connection, which is a real company with real EBITDA and real growth (https://www.usatoday.com/story/tech/reviewedcom/2020/11/11/7-best-places-buy-large-appliances-online/3761016001/). 

Company Overview

Appliances Connection and Goedeker are both e-commerce sites focused on appliances. Along with AJ Madison, AC and Goedeker are the largest focused appliance e-commerce sites out there. Legacy GOED has had a track record of mediocre performance and is smaller than Appliances Connection. However, Appliances Connection has enjoyed consistent profitability and recent performance comparable with OSTK/W (its grown a little slower but is more profitable). Goedeker announced the acquisition of AC last fall. The deal has largely been done in equity (with all equity raised having a warrant with $2.25 strike attached). This deal was likely done to save GOED from insolvency. However, we see AC as the entire value of the business and a reasonably high quality business.

Appliances Connection is 85% of the revenue and more than all of the EBITDA of PF GOED and has seen performance not wildly different from W/OSTK

Appliances Connection also grew on par with W/OSTK in 2020/1Q’21 but at much higher EBITDA margins. 

Valuation – Post acquisition of Appliance Connection, GOED trades at 7.8x management 2021 EBITDA, this compares very favorably to OSTK/W which trade at 20-40x EBITDA. Also note given GOED generated 40% of 2021 EBITDA in 1Q (and 2021 guide was given in November 2020), there is likely significant upside to numbers.

Catalyst

Earnings revision

Valuation starting to matter