Should You Exit From This Small-Cap Consumer Discretionary Stock – LAKE

Apr 06, 2022 12:00 AM PDT | Team Kalkine
Should You Exit From This Small-Cap Consumer Discretionary Stock – LAKE


Lakeland Industries, Inc.

Lakeland Industries, Inc. (NASDAQ: LAKE) manufactures and distributes industrial protective clothing and accessories for the industrial and public protective clothing markets. Its products are sold to a network of over 1,600 global safety and industrial supply distributors via its in-house sales teams, customer service group, and authorized independent sales agents.

Why should Investors make an Exit?

  • Significant Fall in Topline and Bottomline: During 9MFY22 (ended October 31, 2021), LAKE reported a 24.96% decline in net sales to USD 91.59 million from USD 122.05 million during 9MFY21. It further reported a contraction in net income to USD 9.99 million during 9MFY22 from USD 27.24 million during 9MFY21.
  • Long Cash Conversion Cycle: The company's cash conversion cycle has not improved significantly from 283.7 days in Q2FY22 to 251.3 days in Q3FY22. Its cash conversion days remain higher than the industry average of 85.8 days, showing that it takes longer to convert inventories to cash.
  • Deterioration in Margins: The company's Gross and EBITDA margins decreased sequentially in Q3FY22 to 42.1% and 15.0%, respectively, from 46.3% and 16.3% in Q2FY22.
  • Global Operational Risk: Because most of LAKE's manufacturing takes place outside of the United States, the company is exposed to regulatory and trade concerns. As a result, any significant events, such as civil unrest, political instability, and government activities like border fees, currency valuation adjustments, and so on, could negatively impact the company's operations.
  • Unfavourable Technical Indicators: On the daily chart, LAKE's price is sustaining below the downward sloping trend line and facing the same resistance. Furthermore, the momentum oscillator RSI (14-period) is currently at ~52.15 level, reversing from higher levels. On the weekly chart, the price is trading below the trend-following indicators 21-period and 50- period SMA, which may act as a resistance level for the stock. An important support level for the stock is placed at USD 17.16, while the key resistance level is placed at USD 21.20.

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:

LAKE's share price has been on a bearish trend throughout the year, fallen 29.52% in the past twelve months and is currently trading at the lower band of the 52-week range of USD 18.04 to USD 29.64. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 17.52.

Considering the decline in topline and bottom-line numbers, fall in margins, associated risks, current valuation, and detrimental technical indicators, we recommend a "Sell" rating on the stock at the closing price of USD 19.46, up 0.26% as of April 05, 2022.

Three-Year Technical Price Chart (as of April 05, 2022). Source: REFINITIV, Analysis by Kalkine Group

*All forecasted figures and Industry Information have been taken from REFINITIV.

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