1-800-FLOWERS’s stock price has taken a beating over the past six months, shedding 20.9% of its value and falling to $3.89 per share. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in 1-800-FLOWERS, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Do We Think 1-800-FLOWERS Will Underperform?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons you should be careful with FLWS and a stock we'd rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, 1-800-FLOWERS struggled to consistently increase demand as its $1.66 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and is a sign of poor business quality.
2. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, 1-800-FLOWERS’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
1-800-FLOWERS burned through $24.14 million of cash over the last year, and its $374.6 million of debt exceeds the $7.75 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the 1-800-FLOWERS’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of 1-800-FLOWERS until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
1-800-FLOWERS falls short of our quality standards. Following the recent decline, the stock trades at $3.89 per share (or a forward price-to-sales ratio of 0.2×). The market typically values companies like 1-800-FLOWERS based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d suggest looking at our favorite semiconductor picks and shovels play.
Stocks We Like More Than 1-800-FLOWERS
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