Well for a start, we need to see 6.3c hold for a double bottom, otherwise the downtrend may have further to go. From there, unless we see unexpected positive news, there will likely need to be another consolidation period of sideways movement (as we were seeing at 10-13c, prior to the surprise acquisition announcement, which sent us tumbling). Consolidation around 6c-8c levels effectively allows new holders to enter and stale holders to be flushed out, i.e. a reset of the register. From there, my thesis is that the share price will eventually be tied at the hip to earnings per share over the next few years and beyond. Aside from the upcoming quarterly and full-year result (likely to be released tomorrow), the next important annoucement will be the Q1 quarterly of FY23 (3 months ending 30th June 2022) (HLF operate to a 31st March year-end). That quarterly (Q1-FY23 revealed in July 2022) will incorporate The Healthy Mummy financials and thus should reveal a fairly strong EBITDA result. Based on company projections, FY23 should hit ~$6.5m in EBITDA (full-year ending 31st March 2023). From there, if the share price stays the same, the company will be trading on ~5.8x EV/EBITDA ($25m MC + $13m net debt = $38m EV / $6.5m EBITDA) and the company can start to pay down its debt profile. Or, if the EV/EBITDA multiple rises to 10x, then we will see an EV of $65m, which is a market cap of $52m ($65 EV - $13m net debt). That would be a share price of around 16c ($52m / 400m SOI). Either option is possible. For the moment, given the lower gross profit margin of contract manufacturing and the lack of visibility on THM, I understand why the market is ascribing a low multiple to the stock. However, in time, if the company can deliver improving earnings per share, and win back trust, I don't see why the EV/EBITDA multiple shouldn't rise to 10x and possibly much higher. At this point, the maximum downside is 100%. But the maximum upside is easily 400%+, up to a $100m+ MC and possibly much higher over a long term view. Thus, I maintain the view that this is an asymmetric opportunity (i.e. the downside risk is much lower than the upside potential).
We wait.
HLF Price at posting:
6.3¢ Sentiment: Buy Disclosure: Held
