The Lovesac Stock Up 15% Today – Time to Buy LOVE Stock?

The price of The Lovesac stock is going up 15% in pre-market action this morning following the release of an upbeat earnings report covering the second quarter of its 2022 fiscal year.

Sales of the Connecticut-based furniture and home decor retailer landed at $102.4 million during the three months ended on 1 August resulting in a 65% advance compared to the same period a year ago while they exceeded analysts’ consensus estimate for the quarter by 12.5%.

The management cited that this was the 14th consecutive quarter in which the company reported quarterly top-line growth above 25%. Meanwhile, gross margins improved significantly compared to the same period a year ago as they ended the quarter at 57.6% or 749 basis points higher than last year’s 50.1% reading.

Moreover, the company swung to profitability as it reported net income of $8.4 million compared to a $1.1 million loss reported during Q2 2020 while its diluted earnings per share landed at $0.52 compared to a negative EPS of $0.08 during the same period last year. The consensus EPS estimate for this quarter according to data from Capital IQ was a $0.10 loss per share.

Could this post-earnings uptick fully reverse the downtrend that LOVE stock has experienced in the past few months? In the following article, we’ll take a closer look at the recent price action along with assessing the company’s fundamentals to possibly answer that question.

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Lovesac Stock – Technical Analysis

The Lovesac Company stock has performed quite well this year as it has advanced 17% thus far on top of the pronounced 152% gain the stock experienced last year as its strong e-commerce channel allowed it to keep thriving despite the presence of a pandemic headwind.

However, shares of the furniture retailer had been on a downtrend until today as market participants feared that the tailwind provided by stay-at-home measures may progressively fade – a situation that could lead to slower revenue growth moving forward for The Lovesac Company.

As a result, Lovesac stock closed yesterday’s session nearly 45% below its 52-week closing high of $91.4 per share while the price tagged an important support level at $50 per share during a high-volume trading session.

If the current pre-market price action spills over to the live session as is, this would result in a potential reversal of the descending triangle formation highlighted in the chart above.

Yesterday’s tag of the $50 threshold on the back of strong trading volumes and today’s strong bounce off this relevant support are favoring a bullish outlook for the stock as the downtrend may have found a potential bottom.

If that is the case, it is highly likely that the stock may start to progressively recover some of its lost territory in the next few weeks although it would be plausible to expect a fair degree of choppiness along the way due to the latest broad-market weakness.

Lovesac Stock – Fundamental Analysis

Sales of The Lovesac Company have been steadily growing in the past four years, moving from $76.3 million in 2017 to $320.7 million by the end of the company’s 2021 fiscal year at a compounded annual growth rate of 43%.

Profit margins for the company have remained above the 50% threshold during that period and have improved lately to the high 50s while EBITDA and net margins have already swung to positive territory.

Lovesac had a total long-term debt of $83.8 million by the end of this latest quarter primarily consisting of operating leases. Total assets for the firm are standing at $281.25 million including $68.5 million in cash and equivalents.

Meanwhile, at its current price of $50.5 per share, the company is trading at 77 times its forecasted earnings for the next 12 months. Even though this multiple seems significantly stretched, analysts are expecting to see the company reporting strong growth in its bottom-line profitability in the following two to three years as the business has reached a more mature stage.

Last year, diluted GAAP earnings per share landed at $1.01 while a simple run rate of the company’s first-semester 2022 EPS points to a potential $1.32 EPS or higher for the entire 2022 fiscal year.

All things considered, The Lovesac Company appears to be a growing business that displays the characteristics of a top value pick based on its strong historical top-line growth, robust balance sheet, and positive outlook.

With that in mind, if the share price bounces strongly off the $50 mark, chances are that the stock may progressively recover in the following months.

Moreover, it is important to note that 7 out of 7 analysts currently covering the stock are bullish on it while the 12-month price target for LOVE stock is standing at $100 per share resulting in a 100% upside potential based on yesterday’s closing price if that target is hit.

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