Via SeekingAlpha.com

Introduction

At Home Group (NYSE:HOME) is an American big box retail chain specializing in home decor products, based in Plano, Texas.

Investment Thesis

Based on strong fundamentals and the temporary weakening of the stock price of At Home Group Inc., the stock is a buy and is selling at a significant discount to its fundamentals.

At Home Group Inc.

Profitability Indicator Ratios

2019

2018

2017

Gross Profit Margin

33.33%

32.63%

32.47%

Operating Profit Margin

6.84%

9.47%

9.09%

Pretax Profit Margin

4.27%

7.37%

5.19%

Profit Margin Analysis (Net Profit Margin)

4.27%

3.16%

3.90%

Return on Assets

3.23%

2.32%

2.65%

Return on Equity

7.68%

5.35%

6.67%

Source: Author, based on data from Seeking Alpha.

At Home Group Inc.’s gross profit remained flat from 2017 to 2019 because of revenue increases and propositional cost of sales increase due to new store openings. The operating profit margin for At Home Group Inc. dropped from 2017 to 2019 because of increases in selling, general and administrative expenses. Its pretax profit margin dropped from 2017 to 2019 because of large increases in operating expenses. Profits increased from 2017 to 2019, even though the pretax profit dropped because of a tax refund the company received in 2019. At Home Group Inc.’s return on assets and return on equity improved from 2017 to 2019 because of the improved net profit margin for this period. During the coronavirus pandemic, the company has taken steps to minimize the financial impact by rationalizing staffing levels and going to an Amazon-like (NASDAQ:AMZN) online-only delivery and brick-and-mortar curbside pickup. At Home Group Inc. has 50,000 stock keeping units in store to cater to its primary markets of home furnishings and accent décor. The company also plans to drive profitable growth by changing product displays monthly at its stores and conduct aggressive marketing to increase store traffic.

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At Home Group Inc.

Debt Rations

2019

2018

2017

Debt Ratio

58.81%

57.00%

56.20%

Debt-Equity Ratio

142.76%

132.58%

128.30%

Capitalization Ratio

32.12%

32.91%

36.14%

Interest Coverage Ratio

2.81

4.03

2.57

Financial Leverage Ratio

2.38

2.31

2.51

Source: Author, based on data from Seeking Alpha.

At Home Inc.’s debt ratio increased slightly from 2017 to 2019 because of increased long-term debt and revolving line of credit. The company’s debt-to-equity ratio deteriorated and increased from 2017 to 2019 because of increases in liabilities during this period. Its capitalization ratio decreased from 2017 to 2019 because of its reduced usage of long term-debt as a financing option. The company’s interest coverage ratio improved from 2017 to 2019 because of reduction in interest payments during this period, and its financial leverage ratio decreased from 2017 to 2019, which is good because of increases in shareholder equity during this period. Though the debt ratio and debt-to-equity ratio deteriorated during this period, the rest of the metrics show an improvement in At Home Group Inc.’s debt position, which supports the investment thesis.

At Home Group Inc.

Investment Return

2019

2018

2017

Price/Book Value Ratio

0.11

3.27

1.71

Price/Cash Flow Ratio

0.94

18.21

20.88

Price/Earnings Ratio

1.63

64.36

30.28

Price/Sales Ratio

0.07

2.03

1.18

Source: Author, based on data from Seeking Alpha.

The company’s price-to-book value dropped sharply from 2017 to 2019 because of the sharp drop in stock prices due to the coronavirus pandemic. This drop in stock price eliminated most of the risks in the stock due to bargain basement prices for the stock. Price-to-cash flow, price-to-earnings ratio, and price-to-sales ratio all dropped sharply from 2017 to 2019 because of the coronavirus pandemic. Therefore, this stock is very cheap and bears little risk for investors. Thus, this supports the investment thesis.

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Future Outlook

At Home Group Inc. is poised to rebound by 100% in the 2021 to 2023 time frame when the coronavirus pandemic slows down, and it can begin accepting foot traffic again in its stores. Economists are projecting a V-shaped recovery. Even during the pandemic, At Home Group Inc. is still making money because of both its curbside and online delivery. After the pandemic, it aims to drive growth by opening new stores and competing in the growing home furnishings and accent décor markets.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.