Stock Analysis & Ideas

Helen of Troy Brings Beauty to Portfolios

Helen of Troy (HELE) is a remarkable growth stock worthy of my bullish position.

Like her namesake, HELE wandered incognito with light volume trading for decades. It wasn’t until new suitors replaced the loving founders that the stock attracted attention.

Three core segments comprise the core operations. Beauty Supplies, the original business, includes hair styling appliances, grooming tools, decorative hair accessories, liquid-solid-and powder-based personal care products. Beauty products were 22.9% of FY 2021 gross sales, totaling $481.3 million.

Housewares are 34.7% of sales, totaling $727.4 million last year. Housewares include food preparation, cooking, cleaning, and beverage service products.

Health and Home are 42.4%, generating $890.2 million in FY 2021.    

Ownership and secured licenses to distribute, design, and toll-manufacture brand names built revenue and profits. They include Brut®, Belson®, Sure®, OXO®, Hydro Flask®, Vicks® VapoSteam and Pads, Braun®, Honeywell®, PUR®, Tools®, Drybar®, and others. They sold several personal care brands in 2021 for $44.7 million.  

On December 22, 2020, Helen announced “a fully paid-up, 100-year, exclusive global license of Revlon® trademark for hair care appliances and tools and eliminating ongoing royalties.”

The beauty supply business is a growth industry. Store-based sales in 2021 topped $832 billion and $200 billion in online sales. Industry authorities estimate store-based sales will approach one trillion dollars and $360 billion in online sales.

Attractive Numbers

Q3 2021 was a beautiful quarter, beating estimates. Revenue of $624.88 million beat estimates by $70.6 million. Non-GAAP EPS of $3.72 beat by $0.54. Management is forecasting better net sales and diluted EPS.

TipRanks estimates that Q4 2021 EPS will be $1.99 compared to $1.57 for the same quarter last year.

The average Helen Of Troy price target is $255, which represents a 17.7% increase from the current share price.

The stock’s Smart Score, 9 out of 10, suggests returns are likely to outperform the market. The technicals are in positive territory. Return on Equity Asset Growth is 16.1% for the trailing 12 months. News Sentiment for HELE is 100% bullish, while only 61% bullish about the industry.  

Acquisitions are fueling growth. Helen grew from a family-owned business to $2.1 billion in 2021 sales. It acquired Osprey Packs last year for $414.7 million. The acquisition is a notch in management’s strategy to expand its indoor-outdoor portfolio of companies and global footprint.

Osprey Packs is the ninth addition to the eight Leadership Brands. Collectively, LB sales grew 23%. Cash used for the purchase leaves Helen with about $44 million, but the company entered Q4 with an inventory of $585 million, up from $200 million.

Red Isn’t a Good Color

There are red flags for investors. Analysts lowered ratings and expectations for the share price recently to Hold. Light trading volume stymies the investor sentiment, too.  

Consumer Sentiment, measured by the University of Michigan, began falling this month; department store sales fell 7% in December; retail sales overall are edging downward for months. Short interest on the stock climbed to 8%.

Management warns about supply chain shortages and labor issues. Raw material costs are rising, transportation and labor issues mean less net profit. The U.S. Environmental Protection Agency wants existing inventory repackaged to satisfy compliance demands.

I see health and home product sales most vulnerable to the issues above; they might spark a 2%-4% drop in 2022 sales.

Hedge fund activity has held steady over the past 18 months. Managers sold 18,200 thousand shares in the last quarter, when the price rose to an average of $240 per share. Insiders own fewer than 1% of the outstanding shares.

Aging Well

The company is basically financially healthy led by good management. Revenue grows organically and has value-added through acquisitions fulfilling the business plan.

HELE volatility has a low beta of 0.39. It is a measure significantly lower than market volatility. The stock is low-risk and profitable. Long-term investors have profited mightily but cannot expect the same ROI going forward.

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