Telsey Advisory Group has adjusted its price target for Grove Collaborative Holdings Inc. (NYSE: GROV), a sustainable consumer products company, reducing it to $2.00 from the previous $3.00.
Despite the price target reduction, Telsey maintained its Outperform rating on the stock.
The firm's decision comes after Grove Collaborative reported a solid quarter in terms of profitability, with adjusted EBITDA results surpassing expectations. This marks the fourth consecutive quarter that the company has posted positive adjusted EBITDA figures.
However, the company has observed a decline in sales as it reduces advertising spend to concentrate on its more profitable, long-standing customers.
Grove Collaborative has been under its current CEO for one year and is in the midst of a transformation phase, adopting best-in-class retail practices. Although the transformation is taking longer than initially expected, the company has revised its FY24 revenue outlook and increased its adjusted EBITDA margin guidance. Grove Collaborative expects to see quarter-over-quarter revenue growth in Q4.
To enhance profitability, Grove Collaborative is identifying cost-saving opportunities and managing its marketing expenditures effectively. These strategies align with the company's goal to maintain profitability while executing strategic initiatives. Telsey expressed confidence in Grove Collaborative's potential to profitably disrupt the market over the long term as consumer preferences shift away from single-use plastics.
The revised $2.00 price target is based on a 0.3x multiple on Telsey's two-year forward sales estimate for Grove Collaborative, which is consistent with the company's one-year average next twelve months (NTM) multiple.
Grove Collaborative has made strategic amendments to its existing credit facilities to enhance liquidity. This includes a voluntary prepayment of $42 million towards its principal debt under the Term Loan Agreement with Ocean II PLO LLC and others.
The amendments extend the amortization date and reduce the required amount of unrestricted cash, providing the company with increased financial flexibility.
In addition, Grove Collaborative reported a decline in its Q1 2024 revenue, with net sales falling to $53.5 million, down 10.5% from the previous quarter and 25.2% year-over-year. Despite this, the company improved its gross margin to 55.5% and maintained a positive adjusted EBITDA for the third consecutive quarter.
The company also reported a net loss of $3.4 million for the same period. However, Grove Collaborative has outlined strategies for future growth, including increasing advertising spend and focusing on customer experience and new product success. It forecasts net revenue of $215 million to $225 million for the 12 months ending December 31, 2024.
InvestingPro Insights
Grove Collaborative Holdings Inc. (NYSE: GROV) has been a topic of discussion for its transformation efforts and financial performance. The latest data from InvestingPro paints a detailed picture of the company's financial health. With a market capitalization of $54.6 million, GROV is managing a moderate level of debt and has liquid assets that exceed its short-term obligations, suggesting a degree of financial stability in the near term. However, the company is trading at a high Price / Book multiple of 79.59, which is considerably above industry norms and may reflect investor speculation about the company's asset value.
InvestingPro Tips highlight several challenges facing GROV. Analysts anticipate a sales decline in the current year, and the company is not expected to be profitable this year. Additionally, the stock has fared poorly over the last month, with a 1-month price total return of -16.86%. These metrics are critical for investors to consider, especially those looking for growth or stability in the near term. It's also worth noting that GROV does not pay a dividend, which could be a factor for income-focused investors.
For investors seeking a deeper analysis, there are over 10 additional InvestingPro Tips available, providing a comprehensive look at Grove Collaborative's financial metrics and market performance. These tips can be accessed through InvestingPro's platform for those looking to make an informed investment decision.
The InvestingPro Fair Value estimate for GROV stands at $1.82, which is below the current price, indicating that the stock may be overvalued at its previous close of $1.43. With the next earnings date on August 13, 2024, investors will be watching closely to see if the company's ongoing transformation efforts will start to reflect positively in its financial results.
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