EDUC - Educational Development Corporation: Turning Inventory Into Cash Flow

• Q2 results were a double whammy with a sharp decline in sales and a significant build-up of inventory funded by debt.
• With limited cash flow, the company lacks the liquidity to support the stock price with buybacks.
• On the bright side, the overstocking has positioned the company to gain market share as other competitors are facing shortages.
• Management has to execute in Q3 and convert the bloated inventory into cash flow to pay down the existing credit line and restart buybacks.
• Using a DCF with exit multiple valuation, my price target for EDUC is $16 which represents a 65% upside from the current price.

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