Connect with us

Business

Goodfood’s stock market rise surprises

Published

on


Goodfood’s astonishing stock market surge continued Monday for the third consecutive session on the Toronto Stock Exchange.

Shares of the Montreal ready-to-cook meal supplier gained 27% in the first session of the week. The stock had risen 39% on Friday after having already gained 13% on Thursday before the presentation of the year-end performance.

Investors who bought the stock at its low of 26 cents last month find themselves today faced with a very attractive ultra-rapid gain. The stock rose as high as 70 cents during Monday’s session before closing at 63 cents in Toronto.


This rapid rise supported by a high volume of transactions is difficult to explain. Experts admit that the value of Goodfood is complex to calculate given the situation in which the company finds itself.

Called to decide, analyst Martin Landry seemed hesitant. “It seems to be short covering “, he replies, suggesting that investors may have been called upon to cover short positions.

Short selling is a maneuver by which an investor borrows a stock hoping that its value will fall in the hope of buying it back later at a lower price. If, on the contrary, the value increases, the investor is called upon to buy back the security to cover his position and limit his loss.

The negotiator Mickael Dufresne, president of the firm of trading independent Hessen, says he observed transactions made by several large buyers, mainly through BMO, National Bank and TD.

“I don’t think the quarterly results were that good,” he said. The title has hit us a few times over the past year. We have seen a spectacular increase, a bit like a resurgence of life, and each time it ends up calming down and going down to new lows. I don’t know if it will be the same this time, but without good news, I believe it might happen again. Maybe it’s a great opportunity to get out of his position for those who no longer believe in it. »

Concerns

The financial results published Friday by Goodfood were on the whole relatively in line with expectations, but the results are cause for concern.

To reduce the risk of the company running out of cash, executives are trying to maximize efficiencies with reorganization initiatives, working with lenders to put in place a revised credit facility, and considering other funding.

Management itself warns that there is still significant uncertainty regarding the company’s ability to continue operations.

In this context, it is hardly surprising to note that no analyst suggests buying the stock.

Management says it aims to generate adjusted operating profit by the end of February and even thinks it can generate positive cash flow by that date.

Even if that happens, analyst Michael Glen, of the firm Raymond James, expects an operating loss to be generated again in the second half of the fiscal year due to the seasonal nature of activities.

During the summer and holiday season, Goodfood generally expects sales to decline as a greater proportion of customers choose to suspend delivery of their shopping cart. The number of active customers is therefore generally lower during these periods.

Michael Glen continues to believe that the company will need money and will have to find 20 million dollars, possibly before going through the summer. “It could be a challenge, given the current conditions in the capital markets and the company’s roadmap,” he says, referring in particular to the change in strategy that led to the abandonment of the delivery service. groceries on request.

“The action of Goddfood is extremely risky,” he said in a comment sent to his customers.

On a more positive note, Canaccord analyst Luke Hannan is encouraged by the expansion of profit margins following the discontinuation of the on-demand grocery delivery service.

However, he says he is curious to see what growth can now be generated by focusing on revenues from the most loyal customers.

This observation is particularly interesting in an inflationary environment where consumers are watching their spending more, which can affect Goodfood’s revenue.

Moreover, Martin Landry does not expect to see revenue growth at Goodfood before fiscal year 2024. This is why the upside potential of the action is, according to him, limited over the next year.



Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *