Real Money's Paul Price has found a new opportunity.
If you’re a frequent reader of this space, none of this will come as a surprise: Paul Price is a fan of Ethan Allen Interiors (ETD) .
Ethan Allen is exactly the kind of low-key play that Price tends to love. This company isn’t flashy, nor is it trying to change the world with VC funding. Without the mission or market cap to draw headlines, lots of investors miss out on Ethan Allen.
What Price sees, though is a company that quietly builds products every, single home needs. It has a brand that consumers like and respect. The company has no debt, pays good dividends, and boasts a strong earnings per share. All of this speaks of a company that was busy making money while Uber (UBER) built its brand. Price writes:
“With long-term growth like that you'd think that Ethan Allen shares would be highly priced. Instead as of Feb. 11, they were available for only 7.7 times fiscal year 2022's estimated EPS of $3.28," Price wrote recently on Real Money. "That is less than half of Ethan Allen's typical multiple, leaving plenty of room for a sizable ‘catch-up’ move higher.”
This creates a technical indicator that Price looks for when he invests: a company whose stock price hasn’t responded to per-share growth.
“Buying shares which have already experienced price-to-earnings ratio compression is one of the surest ways to making large future gains. Growing earnings multiplied by higher P/Es provides a double-play when market inefficiencies regress towards the mean.”
So, what, asks Price, is Ethan Allen worth? At the stock’s best, shares came in at between 20.2 and 31.5 times the company’s earnings. That’s far from the company’s current earnings-per-share, despite strong growth in sales and overall performance. That sets up the stock for strong gains, and Price sees its value settling north of $50 per share in 2022.
“What else do you need to know? Ethan Allen has a pristine balance sheet, is posting all-time record profits and pays a huge, by today's standards, yield.
Owning shares outright is the best way to lock in unlimited upside potential and a nice income steam.”
