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small-cap

Exit This Small-Cap Leisure Products Stock - MBUU

Mar 25, 2022 | Team Kalkine
Exit This Small-Cap Leisure Products Stock - MBUU

Malibu Boats, Inc.

Malibu Boats, Inc. (NASDAQ: MBUU) is a recreational powerboat manufacturer that works with a global network of independent dealers to design, engineer, manufacture, and market its products. The company sells eight boat brands: Malibu, Axis, Pursuit, Maverick, Cobia, Pathfinder, Hewes, and Cobalt. MBUU's revenue streams include Malibu, Saltwater Fishing, and Cobalt.

Why Should Investors Exit this stock?

  • Weak Liquidity Profile: The company's current ratio at the end of Q2FY22 is 1.14x, compared to the industry median of 1.99x. This implies relatively lackluster liquidity profile against the industry median.
  • Weak Margin Profile: In Q2FY22, MBUU’s reported gross margin was 24.1% vs. the industry median of 41.3% and reported EBITDA margin of 17.6% in the period under consideration which was lower than the 18.7% reported in the same period of the corresponding previous financial year.
  • Dealer Concentration Risk: In FY21, FY20, and FY19, MBUU's top ten dealers contributed 38.7%, 38.5%, and 39.6% of net sales. Loss of any one of the dealers could harm the company's financials.
  • Seasonality Risk: Demand for boats is seasonal in nature, as majority of the sales comes in peak boating season. To overcome the impact of this cyclicality, MBBU has adopted measures like incentivizing dealers who have stable orders with volume rebates programs, offering retail promotions during the periods of off season and boat shows. If MBUU fails to transpire the above-mentioned measures, it may have an adverse impact on the financials of the company.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

MBUU's share price has declined 21.02% in the past nine months and is currently leaning towards the lower band of the 52-week range of USD 55.28 to USD 89.27. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 48.88.

Considering the company's weak liquidity profile, declining margins, current valuation and associated risks. we recommend a "Sell" rating on the stock at the closing price of USD 59.37, up 1.47% as of March 24, 2022.

Three-Year Technical Price Chart (March 24, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.