Goodfood Market (TSX:FOOD) Stock Soars by 12% on Strong Earnings

Goodfood Market (TSX:FOOD) soared on strong quarterly results in which it beat on the top and bottom lines. Is this growth stock a buy today?

| More on:
Business success with growing, rising charts and businessman in background

Image source: Getty Images

One of the best-performing stocks of the year is Goodfood Market (TSX:FOOD). It is a niche company that provides fresh meal delivery kits to subscribers. In light of the economic shutdown, demand for its products have soared.

As of end of day on Tuesday, the company’s stock price was up by approximately 81%. Many investors tend to shy away from stocks that have had big run-ups. However, as we’ve seen in this market, winners keep on winning

Unlike most companies, expectations were high heading into earnings. How did Goodfood Market perform? Let’s take a look. 

The earnings report

Before the bell on Wednesday, the company reported third-quarter results, which ended May 31, 2020:

Metric Reported Expected
Earnings per share $0.05 -$0.05
Revenue $86.6 million $81.38 million

Goodfood Market delivered, and then some. First the first time in company history, it posted positive net income and adjusted EBITDA. Earnings of $0.05 per share crushed estimates for a loss of $0.05 per share, and revenue of $86.6 million also topped expectations. 

Revenue grew by 74% year over year and is reflective of strong demand for the company’s products. The 44% uptick in subscriber growth to 272,000 is no surprise. The company pre-announced these numbers in an early June press release. In that release, it also forewarned on rising costs.

“With the uptick in demand also came operational challenges and additional costs that have impacted our gross margin,which we were able to offset in part by our controlled marketing spend.” — Neil Cuggy, president & chief operating officer

These costs, which amounted to approximately $2.4 million, were a result of staffing and supply chain challenges. The fact that the company was in the black and grew gross margins by 50 basis points, despite these additional costs, is impressive. 

The year ahead

The company is operating in one of the fastest-growing industries in the country — online grocery. Despite our best efforts at controlling the pandemic, consumer habits are changing. 

Goodfood Market is an essential service and “continued to operate throughout the pandemic and experienced an acceleration of growth in demand.” Demand will remain strong even after we emerge from this pandemic. 

The biggest risk to the company is a disruption to its supply chain. As we saw in the third quarter, Goodfood may incur additional costs as a result. Likewise, growth could stall in the event supply chain issues impact its ability to meet demand. 

Overall, management is navigating these challenges quite well. Strong third-quarter results are proof of that. Analysts currently expect the company to grow earnings at a 35% clip over the next few years. Likewise, they have a one-year target estimate of $5.62 per share, which is essentially flat from today’s price. 

Given strong results, expect these estimates to be revised upwards over the next few months. 

Is Goodfood Market stock a buy today?

Despite its current run-up, Goodfood Market is well positioned for outsized growth. The company looks expensive, as it is trading at 25 times book value and hasn’t proven its ability to remain profitable. 

That being said, the third quarter was a big step towards sustainable profitability. Likewise, it is only trading at 1.5 times sales and has an enterprise value-to-revenue ratio of only 1.59 — both of which are quite cheap. 

I have a positive outlook on the company, and Goodfood Market stock is worth another look by aggressive investors.

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 Mat Litalien has no position in any of the stocks mentioned. The Motley Fool recommends Goodfood Market.

More on Investing

Nuclear power station cooling tower
Energy Stocks

Why Shares of Cameco Are Powering Higher

Cameco (TSX:CCO) shares have surged more than 400% in the last five years alone, with more growth on the way.

Read more »

A bull outlined against a field
Stocks for Beginners

Bull Market Buys: 2 TSX Stocks to Own for the Long Run

Are you looking for stocks that could see a bull run for decades ahead? Here are two top TSX stocks…

Read more »

financial freedom sign
Dividend Stocks

Million-Dollar TFSA: 1 Way to Achieve to 7-Figure Wealth

Achieving seven-figure TFSA wealth is doable with two large-cap, high-yield dividend stocks.

Read more »

analyze data
Dividend Stocks

How Much Will Manulife Financial Pay in Dividends This Year?

Manulife stock's dividend should be safe and the stock appears to be fairly valued.

Read more »

food restaurants
Dividend Stocks

Better Stock to Buy Now: Tim Hortons or Starbucks?

Starbucks and Restaurant Brands International are two blue-chip dividend stocks that trade at a discount to consensus price targets.

Read more »

Diggers and trucks in a coal mine
Metals and Mining Stocks

1 Canadian Mining Stock Worth a Long-Term Investment

Cameco (TSX:CCO) stock could be a great long-term investment for Canadian growth seekers.

Read more »

Pot stocks are a riskier investment
Investing

Could Investing $10,000 in Aurora Cannabis Stock Make You a Millionaire?

Let's dive into whether Aurora Cannabis (TSX:ACB) could be a potential millionaire-maker stock, or a dud, over the long term.

Read more »

stock analysis
Energy Stocks

Is Enbridge Stock a Good Buy in May 2024?

Boasting high-yielding dividends and a stable underlying business, Enbridge (TSX:ENB) might be a great buy for your self-directed investment portfolio…

Read more »