Indigo Books and Music Inc.’s Growth Sends the Stock Soaring

Indigo Books and Music Inc. (TSX:IDG) continues to fire on all cylinders.

| More on:
The Motley Fool

After close on Monday Indigo Books and Music Inc. (TSX:IDG) released its financial results for the third quarter of fiscal 2016, and the results showed impressive growth and continued signs that the company’s transformation is and will continue to be a big success.

In response to these results the stock posted an impressive return of over 17% yesterday. So what was so good about the quarter that had investors bidding the stock up so high?

Continued acceleration of revenue growth

This quarter the company posted revenue growth of 12.9% despite operating one less superstore and four fewer small-format stores. This compares to year-over-year revenue growth of 8.8% in the second quarter, so it is a pretty significant acceleration in growth that the company has achieved.

Same-store sales growth was even more impressive, coming in at 15.5% for the superstores, 13.4% for the small-format stores, and a whopping 17.9% for online sales. Indigo experienced growth in all categories with general merchandise posting double-digit growth, and with books posting high single-digit growth, again, greatly helped by the big trend this year in adult colouring books.

According to CEO Heather Reisman, shoppers continue to respond very strongly to the American Girl boutiques and as such, two new boutiques were opened during the quarter in Edmonton and in Calgary. Furthermore, we can expect another American Girl boutique to open up at Sherway Mall in Toronto within the next two months.

Strong margins, cash flows, and balance sheet

Gross margins increased nicely again this quarter to 44.1% from 43.5%, and operating margins increased to 12.5% from 10.2%. EPS came in strong at $2.02 versus $1.27 for a 59% increase. This was driven by increased revenues, increases in the higher-margin general merchandise sales, as well as a lower tax rate.

Free cash flows generated this quarter increased 19.2% to $42.5 million, cash on hand was $312 million as at the end of the quarter, and debt remains negligible.

In summary

Today the company is in a good position to continue on the growth trajectory that it has shown this year. And with the results we are seeing out of Indigo recently, it seems to me to be only a matter of time before investors take notice, more analysts start covering the name, liquidity rises, and demand for the shares rises.

Going forward, the company sees much in the way of growth opportunities and will continue to invest in its growth in order to capture a bigger share of the Canadian retail market.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas owns shares of Indigo Books and Music.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »