Time to mullet over: Why Shaver Shop shares are growing on us
Extended periods of lockdown last year gave many of us the opportunity to go wild. The hair grew long and scruffy as did the beards. It was somewhat liberating, but for those who still had to front up as presentable on Zoom calls, they often had no choice but to do their own grooming. Certainly in Melbourne a trip to the hair saloon was off limits for several months.
Shaver Shop (ASX:SSG) was one of those businesses that has benefited from the changes COVID has forced upon society. Their sales of hair clippers, beard trimmers and other personal care products have soared, especially online sales, which more than doubled for the half year to December 2020.
Shaver Shop commenced in Melbourne in 1986. They have gradually built a network of stores across Australia and New Zealand which stands at 123 currently and they are aiming to get to 135 in three years. But it is the online sales that have grown exponentially as people changed their shopping habits due to COVID. This growth is likely to abate somewhat as life returns to normal, but the trend will remain as more commerce shifts online.
Shaver Shop's revenue growth is not just a function of the COVID surge. Sales have grown at over 25% per annum for the last eight years. Despite this success, they have only captured about 3% of their addressable market in Australia and New Zealand.
The big opportunity is if they can maintain a high level of growth in online sales. Online sales represented 13% of sales in financial year 2019 and have now passed 30%. If online is done well, it can enable a business to grow sales whilst reducing overheads.
Unlike many of their peers in the online retail space, Shaver Shop is a profitable business. They generate gross margins over 40% and a return on equity in the high teens. They generated a net profit of $10.6 million in financial year 2020 and recently announced that profit for the first half of 2021 alone would be between $13.5 million to $14 million.
Since the depths of the COVID crash in March last year the share price has increased by about a factor of six. Despite this the valuation metrics still seem quite modest. The PE ratio for projected 2021 earnings is less than seven and the dividend yield is above 5%. However, it is worth noting that the average PE ratio for the last five years has only been 7.6.
The market capitalisation for Shaver Shop is about $140 million. This makes it a micro-cap stock and off the radar for many investors. About 38% of shares are tightly held by key investors meaning there is a lower level of liquidity in the stock.
Despite the recent strong advance in the share price, it has only just returned to the levels of September 2016, where it hit highs of $1.20 having listed at $1.05 in June of that year. The share price has plunged and rebounded several times making for a volatile ride.
Shaver Shop is not for the timid, but if they can deliver on their potential and lock in the gains they have made in recent times, then it might be one that adds some sparkle to your portfolio.