HELFY - HelloFresh Has A Scalability Problem

2024-07-08 22:15:52 ET

Summary

• HelloFresh operates in the meal kit delivery industry, which struggles with low customer retention rates of 10-20% compared to the 70%+ rates in the restaurant and food delivery industries.
• HelloFresh has increased its marketing expenditures significantly, from 12.5% of revenue in 2020 to 19% in 2023, leading to inconsistent profitability despite having a gross margin of over 60%.
• However, I believe HelloFresh is currently valued very cheaply, with a P/S ratio of 0.14 and a market capitalization of $1.1 billion. Management has also managed to grow market share.
• While the industry poses significant challenges, HelloFresh's excellent management and cheap valuation lead me to a HOLD recommendation.

Thesis: Due to Industry Constraints, HelloFresh Must Choose Between Growing Revenue or Profit

HelloFresh SE ( OTCPK:HELFY , OTCPK:HLFFF ), is an undisputed leader in the meal kit delivery industry. The company grew their US market share to 75%+ in 2022, and enjoys healthy gross margins of 60%+ according to Seeking Alpha data, TTM....

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