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This Small-Cap TSX Stock Soared 275% in 2020: It’s Not Done Yet!

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Goodfood Market (TSX:FOOD) surged 275% this year, thanks in part to tailwinds brought forth by the COVID-19 pandemic. Shares of the rapidly growing meal-kit delivery firm have been white-hot of late, blasting off another 10% on Tuesday amid the continued spread of the more infectious U.K. variant of COVID-19. The U.K. strain of COVID-19 has reportedly touched down in Canada, and if its spread grows uncontrollable, there’s a real chance that Canadians could find themselves stuck at home for a span of many weeks.

Essential retailers like grocery stores will still have their doors open, just like in the lockdowns we had in March and April. That said, many people will likely wish to ditch the trip to the local Safeway to avoid contracting COVID-19 as things get riskier again.

An in-demand service in these unprecedented times

While the inherent value of the convenience to be had with meal-kit delivery services is questionable, there’s no denying its value in this pandemic-plagued environment. In due time, Goodfood’s pandemic tailwinds will fade away, and it’ll be aggressively emailing promos to its customers who’ve opted to cancel. In the meantime, however, the U.K. variant of COVID-19 could spark a far worse third wave of cases.

Should vaccine administration challenges cause this pandemic to drag on through a majority, if not the entirety, of 2021, Goodfood stock could easily be in for another multitude worth of gains.

If you’re one of many investors who’ve ditched your pandemic-resilient defensives for reopening plays, you may be at high risk of feeling the full impact of the next market crash or correction if it turns out vaccine hopes and optimism are overblown at this critical crossroads.

Sure, there’s light at the end of the tunnel. But there’s still no telling how long the tunnel could be at this juncture, given the many unknowns, regarding mutated strains of COVID-19 and just how long it’ll take to get enough people inoculated to reach herd immunity.

Goodfood stock is still a great pandemic-resilient name to hedge your portfolio if the light at the end of this tunnel is much farther out than we initially thought.

Goodfood stock is still cheap given the growth profile

I’m not a fan of chasing stocks after explosive upside moves. While I’d imagine most value investors would cringe at the thought of buying a stock that’s nearly quadrupled in just over a year, the magnitude of price-to-sales (P/S) multiple compression has been nothing short of remarkable. Heck, based on traditional valuation metrics, you could argue that Goodfood stock is still pretty darn cheap.

At the time of writing, Goodfood shares trade at a mere 2.5 times sales. Of course, the multiple could expand at a staggering rate, as subscriber cancel their subscriptions en masse on the other side of this pandemic.

Given management’s knack for improving upon its margins, however, I certainly wouldn’t be surprised if the firm retained a majority of its subscribers won over during this pandemic. How? Not through countless emails incentivizing subscribers to reactivate with discounts, but through a potential lowering of prices or increase in portion size.

Sure, Goodfood would put itself farther away from sustained profitability by doing such, but it’ll gain so much more. As operating margins improve, the company will have the power to pass the value proposition back to its customers. Given the competitive landscape, I’d say that Goodfood’s margin edge could put it above the competition in both the meal-kit delivery service and grocery competitors.

Foolish takeaway

Amid continued uncertainties, now is a great time to hedge your bets with a pandemic-resilient play that’ll likely payoff big-time if this pandemic drags on for longer than most expect.

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

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