2023-07-06 00:43:22 ET
Summary
- MamaMancini's Holdings has demonstrated a strong financial performance, showing consistent revenue growth over the last 10 years.
- The company's focus on expanding its existing brands, coupled with strategic consumer-driven innovation and potential acquisitions, positions MMMB for future growth.
- MMMB stock appears undervalued, as determined by a discounted cash flow analysis. The analysis suggests a significant potential gain for investors compared to the current market price.
Intro
MamaMancini's Holdings, Inc. (MMMB) is a US-based company that specializes in the manufacturing and distribution of prepared, frozen, and refrigerated food products. The company's product offerings include beef and turkey meatballs, beef meatloaf, chicken parmesan, and much more. MamaMancini's sells its products to various supermarkets, mass-market retailers, food retailers, and distributors.
The objective of this article is to provide a comprehensive assessment of MMMB's financial performance and its potential for growth. We will conduct a thorough analysis of MMMB's revenue and profitability patterns, its ability to generate free cash flow, and the overall financial strength indicated by its balance sheet. In addition, we will employ a discounted cash flow analysis to estimate MMMB's intrinsic value, offering valuable insights to investors who are considering MMMB as a potential investment opportunity in the current market.
Performance
In the world of investments, identifying companies with a track record of consistent growth, a strong balance sheet, and impressive profitability is a key objective for investors. One such company that deserves attention is MMMB.
MMMB has displayed remarkable revenue growth over the past decade, a testament to its success in capturing market opportunities and expanding its business. Analyzing the data, we observe that MMMB achieved a consistent streak of growth over the last 10 years. During this period, the company's revenue surged from $9 million in 2013 to $93 million in 2022, representing a total growth of nearly 1000% over the decade. A high growth rate is crucial for companies as it reflects their ability to attract customers, gain market share, invest in innovation, and generate higher returns for investors.
In addition to revenue growth, MMMB has consistently demonstrated strong free cash flow generation. Free cash flow represents the surplus cash a company generates after meeting its operating expenses and capital expenditures. Examining the data, we find that MMMB maintained positive free cash flow over the last five years, allowing the company to fund its growth initiatives and reward shareholders. The company's ability to generate positive free cash flow, such as $4.92 million in 2022, showcases its financial strength and capacity to reinvest in the business for future growth.
MMMB demonstrates responsible financial management, contributing to a solid balance sheet. Two crucial metrics used to evaluate its balance sheet strength are the debt-to-equity (D/E) ratio and the current ratio. The D/E ratio measures the proportion of debt to equity, with lower values indicating a reduced reliance on debt financing. MMMB's D/E ratio of 0.89 reflects a conservative debt management approach, minimizing financial risk and establishing a stable foundation for growth. However, while the current ratio of 1.41 indicates MMMB's ability to meet short-term obligations efficiently, an even higher current ratio would further strengthen the company's liquidity position. This would provide MMMB with enhanced resilience to navigate unforeseen challenges and capitalize on emerging opportunities.
MMMB has exhibited varying levels of profitability over the years, as reflected in its return on equity (ROE) data. ROE serves as a measure of the company's ability to generate profits from shareholders' investments. Upon analyzing the data, it is evident that MMMB achieved an ROE of 20% or higher in just 3 of the past 10 years, indicating ineffective capital utilization during those periods. It is important to note that MMMB also experienced negative ROE in 5 of the last 10 years, highlighting potential challenges and areas for improvement. A high ROE remains crucial as it signifies the company's capability to optimize returns on invested capital, attract investor interest, and foster long-term value creation.
To assess MMMB's performance relative to the broader market, we compare its 5-year total return with that of the S&P 500 index. MMMB has achieved an outstanding total return of 246% over the past five years, outpacing the S&P 500's return of 77%. This comparison demonstrates MMMB's ability to deliver superior returns to its investors, reflecting the company's strong growth trajectory and successful execution of its business strategy.
Outlook
MMMB's first quarter earnings results exceeded expectations, with an earnings per share ((EPS)) of $0.04, surpassing estimates by $0.03. The company also reported revenue of $23.12 million, reflecting a year-over-year growth of 5.91% and surpassing expectations by $770.82 thousand. These results indicate a strong performance for MMMB in the first quarter, demonstrating positive momentum and growth in both earnings and revenue.
These strong results can be attributed to MMMB accelerating and expanding its existing brands. MMMB continues to execute its goal of expanding its existing family of brands with the recent launch of Mama's Creations, a platform brand for international cuisine, which has received positive reviews from retailers and consumers.
Looking ahead MMMB is expected to continue its growth trajectory in the coming fiscal periods. Analysts project an EPS estimate of $0.16 for the fiscal period ending in January 2024, indicating a significant year-over-year growth of 166.67%. The forward price-to-earnings ((PE)) ratio stands at 20.13, suggesting optimistic market expectations for MMMB's future performance. Looking even further ahead to January 2025, analysts anticipate further growth, estimating an EPS of $0.22, reflecting a year-over-year increase of 37.50%. These projections indicate positive expectations for MMMB's continued growth and performance in the upcoming fiscal periods.
Future growth will be powered by MMMB's goal to continue to grow its existing brands. Additionally, MMMB is strategically using consumer-driven innovation to enter new occasions, cohorts, and channels. The introduction of the In-a-Cup portfolio expands the company's product offerings to cater to new consumer needs. Beyond organic growth the company is actively considering potential acquisitions to fill gaps in its portfolio. The company aims to become a one-stop shop for deli prepared foods, addressing the growing market demand for high-quality, convenient, and affordable meal solutions.
The future of MMMB does appear to be bright, though there is a major risk to owning this business, majority of MMMB's revenues are concentrated in only a few customers. In the fiscal year ending on January 31, 2023, MMMB's gross revenues were primarily derived from two customers, accounting for approximately 37% of the total. Similarly, in the preceding fiscal year ending on January 31, 2022, revenue relied on three customers, representing approximately 58% of the total. The potential loss of these major customers would have a substantial impact MMMB's revenue and could adversely affect overall financial performance.
MMMB will need to do everything necessary to keep its major customers happy which is why the company is focused on strengthening the organization and culture. MMMB emphasizes the importance of hiring, promoting, and retaining talent for long-term success. The company is investing in its people and building a consumer-focused culture, as demonstrated by consumer focus groups, company town halls, and a consumer immersion lab. Building a best in class organization will enhance service levels to the company's major clients making MMMB a stickier company that's difficult to move on from. During MMMB's 2024 first quarter earnings call the company's CEO, Adam Michaels, shared his thoughts on growing the customer base.
We are equally excited about the hiring of additional sales capabilities, particularly with the recent hire of our new West Coast sales lead. We will continue to recruit best-in-class talent to grow our feet on the street to take our sales reach to the next level, leveraging our passionate following and fresh, clean products to more aggressively sell into both new and existing customers.
Based on the impressive first quarter earnings results and the company's strategic initiatives, it is our belief that MMMB's growth will remain strong in the future. MMMB's focus on accelerating and expanding its existing brands, as well as leveraging consumer-driven innovation, positions them well to capture new market opportunities and cater to evolving consumer needs. Additionally, the company's consideration of potential acquisitions to fill portfolio gaps highlights a proactive approach to fueling growth.
Valuation
We will utilize the discounted cash flow ((DCF)) analysis, our preferred method of assessing a company's value, to evaluate MMMB's true worth. This approach involves determining the present value of MMMB's projected future cash flows in order to derive its intrinsic value.
To begin the analysis, we will start with MMMB's previous year's free cash flow of $4.92 million. We will apply the average analyst earnings growth rate of 166% for 2023, then we will apply growth rate of 37.5% for 2024 based on average analyst earnings estimates. MMMB is a small company and predicting MMMB's future free cash flows beyond the next two years presents challenges due to uncertainty and limited visibility. However, given the company's strong historical performance, which exhibited an average annual free cash flow growth rate of 86% since 2018, we will utilize a more conservative growth rate of 12% for the following 8 years, which seems more than fair.
In order to calculate the terminal value, we will employ a conservative perpetual growth rate of 2.5%. Applying a discount rate of 10%, which accounts for the long-term return rate of the S&P 500 with dividends reinvested, we determine MMMB's intrinsic value to be $10.59. This suggests that MMMB may currently be significantly undervalued, potentially offering investors a gain of 209% compared to the company's current market price.
Conclusion
MamaMancini's Holdings, Inc. has demonstrated a strong revenue growth over the past decade. The company's focus on expanding its existing brands, coupled with strategic consumer-driven innovation and potential acquisitions, positions MMMB for future growth. The first quarter earnings results exceeded expectations, reflecting positive momentum and growth in earnings and revenue. Analysts project substantial year-over-year EPS growth for the upcoming fiscal periods, indicating positive expectations for MMMB's continued performance.
While there is a risk associated with the concentration of revenues from a few major customers, MMMB is actively focused on strengthening its organization and culture to enhance customer satisfaction. The company's commitment to hiring, promoting, and retaining talent, as well as its investment in a consumer-focused culture, further support its long-term success.
Based on the impressive financial results, growth prospects, and strategic initiatives, it is our opinion that MMMB's growth will remain strong in the future. Moreover, MMMB appears undervalued, as determined by a discounted cash flow analysis. The analysis suggests a significant potential gain for investors compared to the current market price. With an intrinsic value of $10.59, indicating a potential gain of 209%, MMMB presents an attractive investment opportunity.
For further details see:
MamaMancini's Holdings: Strong Performance And Growth Prospects