West Marine Stock Research (WMAR): An Under-appreciated Retail Value

This specialty retailer appears to be an under-appreciated and undervalued stock.

Background: West Marine (NASDAQ:WMAR) is a specialty retailer of boating supplied, gear, and apparel for various water sports. It currently operates 260 stores in 38 states. West Marine has been focusing on ecommerce growth and also store optimization which it refers to as waterlife stores that offer a new shopping experience for customers; it expects to revitalize 15 to 20 stores in 2016. West Marine has 2.61M square feet of store space and is closing 15 stores in 2016 and opening 5 new stores. Merchandise expansion is the third pillar of its growth strategy.

Note that data and information found in 10K and 10Q filings.

Valuation: West Marine stock (WMAR) is trading at 23.6X Earnings, 0.34X Sales, 0.78X Book, 5.4X FCF and 2.7X cash value with no debt. WMAR is projecting 19% EBITDA growth in 2016 and 13% growth in 2017 while EPS set to grow 44% and 38% respectively. West Marine has posted positive revenue growth in 6 of its last 7 years, through a lower growth name at 1.5-5% annual growth. Historically West Marine has seen bottoms near 0.28X Sales and has traded as high as 0.5X Sales. On a P/E basis shares have traded as low as 15X in 2012-2014 and as high as 40X in early 2015. WMAR missed EPS estimates in its Q2 report, but positives included +1.1% comparable store sales and a 27% increase in e-commerce sales. E-commerce sales now represent 10% of total sales with a company goal of reaching 15% of sales. WMAR launched a West Marine outlet online in May and saw very strong sales. Considering its cheap Price/Cash ratio with no debt and positive comps, West Marine could make a nice acquisition target as a niche boating industry retailer for a large sporting goods player.

Industry Outlook: In the latest earnings call the CEO noted a soft April but a pick-up in business later into the quarter, specifically in the Northeast. Recent data from the boating industry is showing strength in sales of powerboats across all categories. Brunswick (BC) in its earnings report in July noted “The U.S. marine market continues to reflect solid fundamentals and growth, which are supported by stable boating participation, favorable replacement cycle dynamics and innovative products being introduced throughout the marketplace.” Also, in late July, Marine Products Corp. (MPX) posted 9.4% Y/Y sales growth.

Research Analysts have an average target of $9.75 on shares with a Street high target of $12. It has limited coverage, and B. Riley is the only notable Analyst on the earnings calls.

Ownership/Options: WMAR has just 2.6% of its float short. Institutional ownership fell 1% in Q1 filings with 9 funds taking new positions, 28 adding, 6 exiting, and 19 reducing. On 8/10, WMAR traded 2,085 call options, more than 100X its total call open interest as buyers mainly targeted January 2017 $10 calls (580 opened) and January 2017 $12.50 calls (500 opened).

Technical: WMAR has performed well seasonally in Q4 with a 5 year average return of +21.97%, due to seasonality in boating. On the chart, WMAR shares are putting in higher lows in a weekly multi-month base, and a move back above $10 sets up for a potential run to $12+.

west marine stock chart bullish price pattern wmar_august 11

Thanks for reading.


Twitter: @OptionsHawk

Author is long WMAR at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.


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