I owned shares of of ret and did some tax loss selling. I can now buy back, however, I am not sure if I should bother to buy back this company. Donville, Kent, who Peter had made mention of their small cap report, and remarked that it was interesting believes that it is an iconic Canadian Brand, and with some changes believes it could be a five bagger. Please give a detailed report with reasons.
Thanks,
BEN.
We are not sure that a company that has been bankrupt before deserves an 'iconic' brand label. Keep in mind many of the executives who ran it into bankruptcy are still there, also. The balance sheet has been fixed, and the company has been 'right-sized'. But it remains small and there are risks here. The shares certainly have potential, as they are simply extremely cheap. Cash flow in 12 months was $105M, and total market cap is $140M. Cash offsets debt, so the whole company could be bought with 18 months of its own cash flow. Assuming no recession, sales could pick up, but sales growth is certainly not expected to be strong. Net sales actually declined in the 2Q (7%) but it was a tough comparable period as 2022 enjoyed the covid-reopening boom. DKAM focuses on return on equity, and at 34.9% RET certainly reads well on that metric. With a former bankruptcy, its small size, weak history and low growth, it is not our type of stock, but that doesn't mean it doesn't have potential. It could do well in a recovery scenario, though we think a call of 5X might be a tad aggressive.