Could This Be the Final Chapter for Indigo Books & Music (TSX:IDG)?

Is Indigo Books & Music Inc. (TSX:IDG) in trouble after yet another earnings flop?

| More on:
question marks written reminders tickets

Image source: Getty Images

Indigo Books & Music (TSX:IDG) can’t seem to catch a break of late. The book retailer that survived the initial onslaught from Amazon.com is now in a world of pain with its shares now down over 66% from its high.

It was never supposed to be this way. What happened?

The company recently pulled the curtain on some pretty underwhelming Q1 2020 results, sending the stock down 15% on Wednesday, a forgettable day for the bulls.

Indigo reported an adjusted loss of $0.69 per share, exceeding the loss expectations of $0.46, making this the fourth straight time that Indigo has fallen short of analyst expectations.

The larger-than-expected net loss came in at $19.1 million and was due to falling sales and higher restructuring costs amidst the company’s initiatives to cut down on costs.

Revenues also fell short of expectations at $192.6 million, down nearly $13 million year over year, and missing the consensus estimate of $237.1 million.

The drastic fall in sales was thanks in part to a reduction in promos to increase profitability numbers. Unfortunately, it appears as though Indigo had cut a bit too deep this time around as the company missed on both the top and bottom line by a country mile, although Q4 2019 was a far bigger strikeout.

When will the pain stop for the struggling book, gift, and toy retailer?

After Indigo’s recent drop, the stock looks technically broken and could stand to injure investors with the guts to try to catch the falling knife. The next stop could be $5 and change, especially if the Canadian economy remains sluggish.

Physical books are a want, not a need, and with readily-available eBooks that can be borrowed from your local library through an app like Libby, many consumers are holding off on buying the latest bestseller from their local Indigo or Chapters.

Gifts and toys provide Indigo with a more recession-resilient stream of cash flows, especially if the company were to double-down on the kids and babies markets, as fellow Fool Will Ashworth pointed out in his prior piece.

Ambrose O’Callaghan seems to think that Indigo can give Amazon a taste of its own medicine with the growth potential behind its e-commerce platform.

While the platform does show tremendous promise, brick-and-mortar will be where Indigo’s real strength will lie moving forward, and as renovations draw in more store traffic, I can’t say that I’m a believer that this is the final chapter for Indigo.

The company could stage a massive comeback, but in order to reap the rewards of such a bounce, investors are going to need a high pain tolerance because Indigo may not have hit bottom yet.

The stock itself is absurdly cheap, though, at 0.19 times sales and 0.53 times book. We’re getting into deep-value territory here, and although I wouldn’t bet the farm on the name after another big miss, it can’t hurt to nibble on the name on the way down.

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.

Joey Frenette has no position in any stocks mentioned.

More on Investing

Increasing yield
Dividend Stocks

3 Cheap Canadian Stocks That Offer Over 7% Dividend Yields

Considering their high-yielding dividends and attractive valuations, these three stocks can be excellent holdings right now.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, April 16

Canada’s latest consumer inflation report and the ongoing geopolitical tensions in the West Asia region could keep TSX stocks volatile…

Read more »

data analyze research
Tech Stocks

1 Stock I’m Buying Hand Over Fist in April Despite the Market’s Pessimism

Are you looking for a stock to buy this month despite the pessimism in the market?

Read more »

value for money
Dividend Stocks

Canadian Tire Is Paying $7 per Share in Dividends. Time to Buy the Stock?

With Canadian Tire trading ultra-cheap and offering a safe dividend yield of more than 5.5%, is it one of the…

Read more »

Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization
Tech Stocks

Constellation Software Stock: Buy, Sell, or Hold?

Constellation Software stock has rallied 186% in the last five years and is now valued at an expensive 100 times…

Read more »

Payday ringed on a calendar
Dividend Stocks

Secure Your Future: Top 2 Monthly Dividend Stocks to Buy in 2024

Here are two top Canadian monthly dividend stocks you can buy today to minimize risks to your portfolio.

Read more »

woman data analyze
Dividend Stocks

Passive Income: How Much to Invest to Get $6,000 Each Year

Have you ever wondered how much to invest to get $6,000 in passive income? It's easier than you think, and…

Read more »

Dividend Stocks

A Dividend Giant I’d Buy Over Suncor Right Now

Suncor stock is a TSX energy giant that trades at a compelling valuation while paying shareholders a tasty dividend yield.…

Read more »