Although home improvement projects have dropped from the highs of the pandemic, the record low supply of homes coupled with high mortgage rates are likely to boost the demand for home improvement projects. Homeowners will likely undertake renovation and remodeling services rather than buying new homes.
Given this backdrop, it could be wise to add fundamentally strong home improvement stocks: Tile Shop Holdings, Inc. (TTSH), Lifetime Brands, Inc. (LCUT), and Steelcase Inc. (SCS) to one’s portfolio.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the home improvement industry is well-positioned for growth.
Home improvement was one of the top priorities during the pandemic as people were stuck indoors with very few options to spend their money on. Surplus cash and work-from-home orders drove home improvement projects. However, home improvement projects have slowed significantly since then due to the uncertain macroeconomic conditions.
With high home prices, a tight supply of homes, and mortgage rates hovering around 8%, prospective homeowners will likely drop plans to own a house and instead spend on home improvement projects, boosting demand for home improvement companies.
The long-term prospects of the home improvement industry look good due to rising disposable income, DIY projects, aging housing stock, etc. The growing popularity of DIY home improvement projects is expected to boost the global DIY home improvement retailing market. It's forecasted to achieve steady growth with a consistent 4.4% CAGR, resulting in around $1.28 trillion in revenue by 2030.
The global home improvement market is booming thanks to the growing interest in smart homes and heightened security needs. Advancements like the Internet of Things (IoT) and AI are shaping market trends. The home improvement market is projected to grow at a CAGR of over 5%, reaching $423.90 billion by 2027.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Home Improvement & Goods picks, beginning with the third choice.
Stock #3: Tile Shop Holdings, Inc. (TTSH)
TTSH is a specialty retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories in the United States. It offers natural stone and man-made products primarily under the Rush River and Fired Earth brands.
In terms of forward EV/Sales, TTSH’s 0.97x is 11.6% lower than the 1.09x industry average. Its 0.63x forward Price/Sales is 18.2% lower than the 0.77x industry average. Likewise, its 22.13x forward EV/EBIT is 73.7% lower than the 12.74x industry average.
On June 26, 2023, TTSH announced the opening of a new retail showroom in Colorado Springs, their 5th location in the Colorado market, offering a wide range of high-quality tile products, expert guidance, and services for home tile projects. The new showroom would help the company grow its customer base.
TTSH’s net sales for the second quarter ended June 30, 2023, came in at $98.56 million. Its income from operations came in at $7.73 million. The company’s net income and net income per share stood at $5.08 million and $0.12, respectively. Also, its adjusted EBITDA came in at $13.58 million.
Analysts expect TTSH’s revenue for the quarter ending December 31, 2023, to increase 4.7% year-over-year to $91.61 million. Its EPS for the quarter ending March 31, 2024, is expected to increase 33.3% year-over-year to $0.08. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 39.3% to close the last trading session at $5.49.
TTSH’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Sentiment and Quality. It is ranked #3 out of 58 stocks in the B-rated Home Improvement & Goods industry. To access TTSH’s grades for Growth, Value, Momentum, and Stability, click here.
Stock #2: Lifetime Brands, Inc. (LCUT)
LCUT designs, sources, and sells branded kitchenware, tableware, and other products for use in the home in the United States and internationally. The company provides kitchenware products, tableware products, home solutions, and home décor products.
In terms of forward non-GAAP PEG, LCUT’s 0.68x is 51.3% lower than the 1.39x industry average. Its 0.59x forward EV/Sales is 45.8% lower than the 1.09x industry average. Likewise, its 8.92x forward EV/EBIT is 30% lower than the 12.74x industry average.
For the third quarter ended June 30, 2023, LCUT’s net sales came in at $146.44 million. Its adjusted income from operations rose 101.5% year-over-year to $8.42 million. The company’s gross margin increased 1.5% year-over-year to $55.99 million.
For the quarter ended September 30, 2023, LCUT’s EPS and revenue are expected to increase 60.4% and 2.3% year-over-year to $0.26 and $190.84 million, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 9% to close the last trading session at $5.34.
LCUT’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and Sentiment and a B for Value. It is ranked #2 in the same industry. To see LCUT’s Momentum, Stability, and Quality ratings, click here.
Stock #1: Steelcase Inc. (SCS)
SCS provides a portfolio of furniture and architectural products in the United States and internationally. It operates through the Americas, EMEA, and other segments.
In terms of forward non-GAAP P/E, SCS’ 13.14x is 19.6% lower than the 16.36x industry average. Its 0.54x forward EV/Sales is 65.1% lower than the 1.56x industry average. Likewise, its 0.39x forward Price/Sales is 68.6% lower than the 1.24x industry average.
SCS’ revenue for the fiscal second quarter that ended August 25, 2023, came in at $854.60 million, while its gross profit rose 13% year-over-year to $283.40 million. The company’s adjusted operating income rose 48.9% over the prior-year quarter to $53.30 million. Also, its adjusted EBITDA increased 26.9% year-over-year to $77 million.
In addition, the company’s net income and adjusted earnings per share came in at $27.50 million and $0.31, representing an increase of 40.3% and 47.6% over the prior-year quarter, respectively.
Street expects SCS’ EPS for the quarter ending November 30, 2023, to increase 13.8% year-over-year to $0.23. Its revenue for the quarter ending May 31, 2024, is expected to increase 3.9% year-over-year to $781.15 million. It surpassed the Street EPS estimates in each of the trailing four quarters. The stock has gained 54.3% year-to-date to close the last trading session at $10.91.
It’s no surprise that SCS has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Sentiment, and Quality. Within the Home Improvement & Goods industry, it is ranked first. In total, we rate SCS on eight different levels. Beyond what we stated above, we also have given SCS grades for Momentum and Stability. Get all the SCS ratings here.
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SCS shares were trading at $11.02 per share on Wednesday afternoon, up $0.11 (+1.01%). Year-to-date, SCS has gained 61.18%, versus a 11.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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