American Woodmark Corporation: Volatile, But Cheap

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As a value-oriented investor who focuses connected high-quality companies, I spot a tremendous magnitude of weight connected accordant financial performance, peculiarly connected nan bottommost line. From my experience, companies that grounds little volatility connected this beforehand often outperform those that grounds much volatility. Although nan companies that deficiency consistency are little desirable, this does not mean that they each make bad finance prospects. The cardinal is to make judge that you bargain them astatine a inexpensive capable value to relationship for that antagonistic attribute. One patient that is inexpensive capable to warrant a ‘buy’ standing contempt its humanities way grounds is American Woodmark Corporation (NASDAQ:AMWD).

A niche business

According to nan guidance squad astatine American Woodmark, nan institution operates arsenic 1 of nan largest furniture manufacturers successful nan US. Examples present see room cabinetry, bath cabinetry, agency cabinetry, as good arsenic different offerings for illustration location statement and hardware. In summation to producing cabinets and different offerings successful a assortment of designs, finishes, colors, and more, nan institution besides provides customers pinch different options. For instance, nan made-to-order products it sells are typically special-ordered by customers and shipped straight to their homes from its factory. But astir of nan products offered are sold en masse and distributed to location builders, contractors, remodelers, independent dealers and distributors, and more. Much of its product, to beryllium clear, is sold to location betterment stores for illustration The Home Depot (HD) and Lowe’s Companies (LOW). These 2 firms connected their ain relationship for astir 48% of nan company's gross successful immoderate fixed year. The patient achieves each of this done nan 17 manufacturing accommodation that it operates and by utilizing third-party logistics providers that it has established relationships pinch complete nan years.

Author - SEC EDGAR Data

Over nan past 5 years, gross for nan institution has grown nicely. Sales went from $1.25 cardinal successful 2018 to $1.74 cardinal successful 2021. In 2022, income roseate moreover higher, hitting $1.86 billion. That accrued comparative to nan 2021 fiscal year, totaling 6.5%, was driven successful ample portion by an 8.6% emergence successful nan caller building transmission acknowledgment to a emergence successful caller lodging starts and an summation successful income successful nan opening value constituent cabinets that nan institution sells. By comparison, income nether nan remodel transmission roseate a much humble but still awesome 5.2%. Aiding nan institution connected nan income beforehand was not only nan emergence successful lodging activity, but besides an betterment successful nan unemployment rate, arsenic good arsenic improved wages.

On nan bottommost line, however, nan image was not rather arsenic good. Net income complete nan 5 years covered has been a spot volatile. Between 2018 and 2021, it remained bouncing astir successful a scope of betwixt $61.2 cardinal and $83.7 million. But then, successful 2022, nan institution generated a nett nonaccomplishment of $29.7 million. Much of nan symptom successful nan 2022 fiscal twelvemonth was driven by a diminution successful nan company's gross profit separator from 18.5% to 12.2%. Higher worldly and logistics costs, arsenic good arsenic proviso concatenation disruptions, higher wages, and different factors, negatively impacted nan company's bottommost line. Other profitability metrics followed a akin path. Operating rate flow, for instance, spiked from $86.8 cardinal successful 2018 to $190.8 cardinal successful 2019. Every twelvemonth aft that it fell, hitting $151.8 cardinal by 2021 earlier plunging to $24.4 cardinal successful 2022. However, if we set for changes successful moving capital, nan image doesn't look rather arsenic bad. From 2018 to 2021, nan metric expanded from $116.2 cardinal to $199.6 million. But then, successful 2022, it did autumn to $147.7 million. Meanwhile, EBITDA for nan institution peaked astatine $244.9 cardinal successful 2019. Every twelvemonth aft that nan metric fell, yet hitting $138 cardinal successful 2022.

Author - SEC EDGAR Data

In nan first 2 quarters of nan 2023 fiscal year, nan institution knowledgeable thing of a resurgence successful activity. Revenue spiked from $895.7 cardinal to $1.10 billion. This increase, totaling 23.3% twelvemonth complete year, was driven by maturation crossed each of nan company's income channels, mostly arsenic a consequence of higher prices that nan patient was capable to walk connected to its customers. Unlike successful nan 2022 fiscal year, erstwhile nan institution lacked pricing power, 2023 has proven to beryllium a spot different. Net income of $48.9 cardinal dwarfed nan $5 cardinal successful profits generated successful nan first half of 2021. Operating rate travel went from antagonistic $10.2 cardinal to $55.4 million. On an adjusted basis, it expanded from $70.6 cardinal to $112.3 million, while EBITDA astir doubled from $62.9 cardinal to $124.1 million.

On February 28th, earlier nan marketplace opens, nan guidance squad astatine American Woodmark is expected to denote financial results covering nan 3rd 4th of nan 2023 fiscal year. The existent expectation is for income to travel successful astatine $508.4 million. That would correspond a bully summation complete nan $459.7 cardinal reported 1 twelvemonth earlier. Much of this, again, would apt beryllium owed to value increases. Analysts presently deliberation that net per stock will beryllium $1.13. That stacks up nicely against nan $2.97 nonaccomplishment reported 1 twelvemonth earlier. On an adjusted basis, net per stock should climb from $0.60 to $1.78. Unfortunately, we don't cognize what to expect for 2023 successful its entirety. But alternatively of assuming that bully things will continue, I judge it would beryllium much due to worth nan institution based connected past financial data.

Author - SEC EDGAR Data

Using information from nan 2022 fiscal year, we can't really cipher a price-to-earnings multiple. But we do cognize that nan value to adjusted operating rate travel aggregate should beryllium astir 6.6, while nan EV to EBITDA responsibility array should travel successful astatine 10.3. I also, successful nan floor plan above, provided pricing information utilizing nan results from some 2020 and 2021. Although from a price-to-earnings approach, AMWD banal doesn't look nan cheapest, it doesn't look terribly pricey either. And from a rate travel perspective, it looks rather cheap. As portion of my analysis, I did comparison nan institution to 5 akin firms. On a value to operating rate travel basis, these companies ranged from a debased of 6.6 to a precocious of 25.7. In this case, American Woodmark was tied pinch 1 different patient arsenic being nan cheapest of nan group. And finally, utilizing nan EV to EBITDA approach, nan scope was from 5.6 to 9.4. In this case, our imaginable is nan astir costly of nan group. But successful nan arena that we spot financial results move backmost to what they were successful nan 2021 fiscal year, shares would quickly go cheaper than immoderate of its peers pinch nan objection of one.

Takeaway

Operationally speaking, American Woodmark is acold from being nan champion imaginable connected nan market. It's somewhat unnerving to spot nan bottommost statement volatility nan institution has experienced. Most certainly, this is not nan benignant of patient that is for nan faint of heart. But for those who want a inexpensive institution and who tin grip volatile bottommost statement results, I do deliberation that shares are inexpensive capable to warrant immoderate further upside. Because of this, I've decided to complaint nan business a soft ‘buy’ astatine this time. That's a standing that indicates my belief that shares are apt to outperform nan broader marketplace moving forward.

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