Consumers are facing financial stress due to high inflation and increasing borrowing costs caused by the Federal Reserve’s interest rate hikes. Moreover, the recent banking system turmoil has worsened the situation, reducing purchasing power and decreasing consumer spending.
RV company Lazydays Holdings, Inc. (LAZY) is facing an uphill battle in the current economic environment with deteriorating financials, bleak growth prospects, and low profitability. Hence, I think investors should steer clear of this stock, and in this article, I’ll explain why.
The Federal Reserve raised interest rates by 25 basis points amidst a severe banking crisis, and the possibility of further rate hikes still exists due to inflation being above the Fed’s comfort level.
Moreover, the banking sector’s instability has made it harder for consumers to obtain loans for significant purchases. According to University of Michigan survey, consumer sentiment declined in March for the first time in four months, dropping by 8% from February levels.
In addition, amid heightened recessionary fears in the economy, consumers tend to prioritize their spending on essential goods and services, such as food and healthcare and may delay or cancel discretionary spending, which might further impact the company’s demand prospects.
The RV company failed to surpass the previous quarter’s consensus revenue and EPS estimates. The company also reported declining revenues in all of its segments in the last quarter.
The stock has declined 12% over the past month and 43.2% over the past year, closing the last trading session at $11.57.
Here is what could influence LAZY’s performance in the upcoming months:
Deteriorating Financials
LAZY’s revenue declined 24.5% year-over-year to $243.49 million for the fiscal fourth quarter that ended December 31, 2022. Its income from operations decreased 91.2% from the prior-year quarter to $2.31 million.
Its adjusted net income declined 95.4% year-over-year to $936 thousand, while adjusted EPS decreased 102.2% year-over-year to negative $0.02.
Additionally, the company’s adjusted net income and adjusted EPS saw significant declines in the fiscal year 2022. Its adjusted net income decreased by 95.4% year-over-year to $936 thousand, while the adjusted EPS decreased by 102.2% from the prior year to negative $0.02.
Bleak Growth Prospects
Street expects LAZY’s revenues to decline 21.6% year-over-year to $294.77 million in the fiscal 2023 first quarter (ended March 2023). The loss per share for the same quarter is expected to grow 87.8% year-over-year to $0.14. Also, the company missed the consensus EPS estimates in each of the trailing four quarters.
Furthermore, analysts expect the company’s loss per share to increase 69% year-over-year to $0.75 for the current fiscal year 2023. Its revenue is likely to decrease 9.6% year-over-year to $1.20 billion in the current year.
Low Profitability
LAZY’s trailing-12-month gross profit margin of 24.77% is 29.7% lower than the 35.23% industry average. Its trailing-12-month CAPEX/Sales of 3.01% is 6.5% lower than the 3.21% industry average.
And the stock’s trailing-12-month EBIT and EBITDA margins of 6.76% and 8.02% are 13.3% and 29.8% lower than the respective industry averages of 7.79% and 11.43%.
Unfavorable POWR Ratings
LAZY’s overall D rating equates to a Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. LAZY’s F grade for Sentiment is in sync with its weak revenue and earnings growth estimates.
Furthermore, it has a D grade for Growth, consistent with its poor performance in the latest quarter. Its 60-month beta of 1.74 justifies its D grade in Stability.
LAZY is ranked #46 out of 52 stocks in the C-rated Consumer Goods industry.
Beyond what I have stated above, we have also given LAZY grades for Quality, Value and Momentum. Get all LAZY ratings here.
Bottom Line
The stock is currently trading below its 50 and 200-day moving averages of $12.22 and $13.35, indicating a downtrend.
Moreover, LAZY experienced declining revenues across all of its business units or product lines, leading to losses for the quarter.
In addition, the current economic climate, including high inflation and interest rate hikes, has made it even more challenging for LAZY to recover.
Hence, avoiding the stock might be ideal.
Stocks to Consider Instead of Lazydays Holdings, Inc. (LAZY)
The odds of LAZY outperforming in the weeks and months ahead are significantly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these three stocks rated A (Strong Buy) from the Consumer goods industry instead:
Ennis, Inc. (EBF)
Yue Yuen Industrial (Holdings) Limited (YUEIY)
Kimberly-Clark de México, S. A. B. de C. V. (KCDMY)
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LAZY shares were trading at $11.93 per share on Friday afternoon, up $0.36 (+3.11%). Year-to-date, LAZY has declined -0.08%, versus a 7.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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