2023-12-06 07:00:00 ET
Summary
- Calavo Growers has experienced a 17.64% surge in its stock price in the last five days.
- Concerning aspects include a decline in revenue and ongoing negative earnings.
- The upcoming Q4 2023 earnings report may provide clarity on CVGW's trajectory and growth prospects.
Calavo Growers, Inc. ( CVGW ) has recently experienced a notable 17.64% surge in its stock price within the last five days. However, an in-depth examination of the company's financials presents a more tempered perspective. Despite a consistent upward trend in TTM net income, there are concerning aspects, such as a year-over-year decline in revenue and ongoing negative earnings. Anticipation surrounds the forthcoming Q4 2023 earnings report, which is expected to be disclosed later this month . While some positive signals have emerged from insider buying and the return of Lee Cole as CEO, the company faces a lack of evident growth prospects. In light of this, I recommend a wait-and-see-hold approach, refraining from investment action until concrete growth indicators materialise.
Five day stock trend (Seeking Alpha)
Calavo Growers overview
Calavo Growers specialises in distributing avocados, prepared avocado products, and perishable foods globally to various retail and wholesale clients. Revenue is generated through two main segments: avocados, tomatoes, and papayas sourced internationally (grown segment), and prepared products like guacamole, salsa, and fresh-cut fruit packages.
Sales by product category (Investor presentation 2023)
The company is strategically positioned to leverage the growing demand for avocados, which is projected to increase by 4% annually in the US until 2025. However, despite this potential, Calavo's revenue hasn't rebounded to pre-COVID levels, remaining flat or declining over the past four years, signaling a cause for concern.
Industry growth trends (Investor Presentation 2023)
Calavo Growers financials
Calavo Growers witnessed a positive trajectory in both financials and stock performance until FY2019. However, post-FY2019, the company has struggled with stagnant and declining top and bottom-line results, concurrently depleting its cash reserves. The trend reflects a decline in annual revenue since FY2019, with the trailing twelve months ((TTM)) at $974.3 million. Moreover, gross profit has followed suit, currently standing at $74.9 million TTM.
Annual revenue and gross profit (Seeking Alpha)
Net income has notably decreased post-FY2020, entering negative territory, though showing signs of improvement, with TTM at negative $3.8 million. Optimism could rise if the upcoming quarterly report demonstrates a continued upward trend in this aspect.
Annual net income (Seeking Alpha)
However, the leveraged free cash flow is concerning, reflecting a negative TTM of $3.2 million compared to a positive $30.6 million in FY2022. Such cash burn can hinder the company's ability to reward investors, settle debts, and reinvest in its operations.
Annual levered free cash flow (Seeking Alpha)
The company's current total cash position stands at $1.4 million. While the current ratio of 1.48 suggests the ability to cover short-term obligations, the debt-to-equity ratio of 0.21 indicates a relatively lower level of debt in relation to equity.
CVGW stock valuation
Calavo Growers has recently experienced a notable 17.64% surge in its stock price over the past five days. Encouragingly, there's been substantial insider buying activity at prices higher than the current trading value, signalling confidence within the company. Additionally, when evaluating the stock's performance over a decade, it's currently trading at historical lows.
Ten-year stock trend (Seeking Alpha)
Yet, exercising caution is warranted, considering the limited recent financial developments. The absence of Q4 2023 results coupled with the TTM showing a decline in revenue, albeit with a slight improvement in the bottom line, the company still reports losses. Moreover, observing entities like BNP Paribas Arbitrage SNC reducing their stakes in Calavo Growers indicates mixed sentiments in the market.
This uncertainty surrounding the company's return to pre-FY2020 financials, coupled with the declining top-line performance and a notably low gross profit margin, serves as a cue for investors to remain cautious. The upcoming release of Q4 2023 financials may provide clarity on the company's trajectory and potential for recovery. Staying observant and reassessing post-Q4 results would be a prudent approach, allowing for a clearer understanding of Calavo Growers' financial stability and growth prospects before making investment decisions.
Final thoughts
Calavo Growers, Inc. has recently seen a notable surge in its stock price, accompanied by cautious financial signals. While there are positive indicators like insider buying and a historical low in stock prices, the company's financial landscape tells a tempered story. With declining revenue, ongoing losses, and uncertainty surrounding growth prospects, a 'wait-and-see' stance is recommended. The upcoming Q4 2023 earnings report could shed light on the company's trajectory. Prudence lies in monitoring these results to grasp Calavo Growers' financial stability before making investment decisions. Therefore, I recommend a wait-and-see-hold approach.
For further details see:
Calavo Growers: Stock Surge, Financial Uncertainty Pre-Q4 2023