That’s the million dollar question I guess.Everyone follows a...

That’s the million dollar question I guess.

Everyone follows a different investing path and therefore everyone will have a different view on its value. Personally, I follow the value investing path so what guides me is the valuation that I have conducted on it. I won’t give my valuation here but suffice to say I believe this stock is severely undervalued. In my opinion, I think if sentiment changes it could be enough to go back up near the $3. The industry avg PE is 16, so if we assume (and this is the bone of contention figure now) EPS remains the same at 0.19, then a PE of 16 = around $3. I think there is good reason to believe that a 0.19 EPS can be achieved either this year or next year. I think next reporting date is very important, because it’s going to show us whether it’s a one hit wonder that could only occur during the pandemic, or if it’s a sustainable business moving forward.

In my view, the business fundamentals have not changed, and the customer has not changed. What has changed is the demand for the product (lower sales), and increased CODB. Fundamentally though, the business hasn’t changed, and it is continuing to grow with store rollouts.

I see opportunity for the company in several areas, some of which they are working on already, and any positive announcements related to these will see a re-rating;

1. Wholesale sales
2. More user-friendly website
3. Regional area growth
4. International announcement, and
5. Being competitive to try and take market share.
6. Not paying Tax assets and getting interest instead.
7. Optimising suppliers to achieve increased margins.

Another area to consider is that the market is largely driven by the ‘EPS’ number, but this number is superficial for this company. For example, if the company decided to (hypothetically) not claim depreciation on their fit-outs or the Dusk rewards program, OR they decided to stop new fit-outs, the EPS would skyrocket. Depreciation (a non-cash expense) affects a substantial portion of their earnings. If they lowered this expense, the share price would skyrocket as well. The reality is though, this business takes in a lot of cash and the EPS does not give a true representation of Dusk’s capability.

So to conclude, I think this stock will move with positive news, and I think it can re-rate back to $3 if the market determines that it is not a one hit wonder. The bet really comes down to if you think it’s a one hit wonder or not. A lot of people in the forum believe it is, and I think this shows why the sentiment on the stock is so low. However, if they are wrong the stock will jump. Personally, I think they are wrong. I see this stock as having a long highway of growth with some easy wins on sales which could be done tomorrow if they chose to. It’s such a simple conservative business. On a side not, I also noticed that Dusk has not come out in confession season (unlike other retailers) to announce negative news. This implies that at the very least, they are profitable – which counters the idea that it is a one hit wonder.