Enterprise Value = $358.61 million
Operating Income = $49.48 million
EV/Operating Income = 7.24x
Price/Revenue = .53x
Earnings Yield = 10%
Debt/Equity = 15%
Hooker Furniture is a Virginia-based furniture company that has been in business since 1924. They own multiple brands. Their line of Hooker branded furniture includes items for home entertainment, home office, accent, dining, and bedroom. They also own an upholstery segment and acquired the Home Meridian brand in 2016.
Hooker primarilly sells their furniture to other retailers without the burden of a massive physical brick and mortar footprint. They sell their furniture primarily to independent furniture stores, department stores, warehouse clubs, and e-commerce retailers. Their furniture is featured prominently on Wayfair, for instance.
The stock has been punished since last fall due mainly due to macro moves in the broader market that aren’t showing up in the actual operating results of the company.
Hooker Furniture is a business with a bright long term future. I really like the fact that they don’t have a big physical brick and mortar footprint. This keeps them versatile as brick-and-mortar stores face pressure due to mounting threats from e-commerce. As furniture demand dries up in the stores, they should be able to quickly replace that demand with more sales to online businesses.
Hooker Furniture also has a solid long term track record. They never suffered a loss during the Great Recession, and have grown steadily through every year of the expansion. Their acquisition of Home Meridian is a smart move and was completed while maintaining a conservative balance sheet. The company earned $2.42/share last year, which compares to a $.80/share 5 years ago.
The risk is that this is a cyclical business. The yield curve just inverted and we are likely to have a recession in the next two years if past history is any guide. Despite this risk, when I saw this company show up in a few of my stock screens, I couldn’t resist it when I did more research. At current multiples, it’s too compelling of a bargain to pass up. It’s indeed an excellent company at a bargain price.
From a relative valuation standpoint, Hooker’s current P/E of 10.40 compares to a 5-year average of 17. The current P/E is also significantly below the P/E of competitors in the industry, such as Flexsteel, which trades at a P/E of 24. Another competitor would be Basset Furniture, which currently trades at a P/E of 19. An increase in P/E to the 5-year average would be a 63% increase from current levels. A P/E of 15 seems right for a steadily growing, well run, conservatively financed, and versatile company like Hooker furniture. HOFT also trades at 53% of sales, which compares to an industry average of 72%. On an enterprise multiple basis, Hooker’s current 7.24x multiple compares to a 5-year average of 10.67. An increase to this level would be a 47% increase from current levels.
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