Should You Exit From This Small-Cap Building Products Provider – AMWD

Apr 08, 2022 12:00 AM PDT | Team Kalkine
Should You Exit From This Small-Cap Building Products Provider – AMWD


American Woodmark Corporation

American Woodmark Corporation (NASDAQ: AMWD) creates and sells kitchen cabinets and vanities for the remodeling and new home construction markets. The company provides framed stock cabinets in over 400 different cabinet lines. Its products are sold nationally in the remodeling and new home construction markets throughout the United States.

Why should Investors make an Exit?

  • Fall in Operating Income and incurred losses: Due to a considerable rise in the cost of sales and distribution, the company's operating income fell considerably by 82.75% to USD 5.22 million in Q3FY22 (ended January 31, 2022) from USD 30.28 million in Q3FY21. AMWD also recorded a net loss of USD 49.26 million in Q3FY22, compared to a profit of USD 18.45 million in Q3FY21.
  • Customer Concentration Risk: As of January 31, 2021, the company's two largest customers, Customers A and B, accounted for 32.9% and 21.1% of its gross customer receivables, respectively. Furthermore, as of January 31, 2022, its top two customers, A and B, accounted for 31.3% and 18.8% of its gross customer receivables, respectively. The loss of even one of these crucial customers might jeopardize the company's finances.
  • Bearish Technical Indicators: On the daily chart, AMWD price is trading below the downward sloping trend line and facing the same resistance. Furthermore, the momentum oscillator RSI (14-period) is trading at ~36.08 level, trading in negative territory. On the weekly chart, the prices are trading below the trend-following indicator 50-period SMA, which may act as a resistance level for the stock. An important support level for the stock is placed at USD 36.00, while the key resistance level is placed at USD 60.00.

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:

AMWD's stock price has been on a bearish trend throughout the year, fallen 52.57% in the past twelve months and is currently leaning towards the lower end of its 52-week range of USD 44.01 to USD 105.90. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 44.02.

Considering the decline in operating income, bottom-line pressure, associated risk, bearish technical indicators, and current valuation, we recommend a "Sell" rating on the stock at the current price of USD 47.61, up 0.76% as of April 08, 2022, at 9:07 AM PDT.

Three-Year Technical Price Chart (April 08, 2022, at 9:07 AM PDT). 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.