Galeanu Mihai/iStock through Getty Pictures
Firm Background
QEP was based in 1979 and relies in Boca Raton, Florida with places of work in Canada, Europe, Asia, Australia, and New Zealand. The corporate designs, manufactures, and distributes of a broad vary of branded instruments and equipment for putting in flooring. In addition they manufacture and promote numerous forms of flooring below three totally different model names. The corporate sells these merchandise to dwelling enchancment retailers, specialty distributors, and flooring sellers.
Following its founding, QEP grew over a few years by making quite a few acquisitions within the U.S., Canada, Europe, Australia, and New Zealand to turn out to be a serious provider of flooring instruments and equipment. Nonetheless, even after the worldwide acquisitions House Depot has all the time been their largest buyer and within the fiscal yr ending February 28, 2022 gross sales to House Depot had been 39% of whole firm gross sales. The corporate has a number of sources of provide for practically all uncooked supplies and completed merchandise and isn’t depending on a single provider for greater than 10% of such purchases.
QEP operates 48 amenities in seven states and eight nations and employs about 807 individuals of which 765 are full-time staff.
Financials
Gross sales and adjusted EBITDA for the fiscal yr ending February 28, 2022 had been $445.5 million and $18.3 million respectively. That is the best gross sales and adjusted EBITDA the corporate has generated within the final 10 years. Moreover, whereas there are presently some properly acknowledged damaging market elements, QEP’s gross sales and earnings ought to proceed to point out yr over yr enchancment not less than via the top of their fiscal yr ending February 28, 2023 and doubtless longer.
The continued pandemic, geopolitical points, rising rates of interest, excessive inflation, and provide chain difficulties are authentic considerations for a lot of firms together with QEP. Nonetheless, there are some market forces affecting a flooring firm that counteract these damaging concerns and will lead to additional enhancements within the firm’s gross sales and earnings.
Flooring demand is pushed by housing begins and transforming and each look good not less than for the close to time period. U.S. housing begins are forecasted to extend by round 4% in 2022 vs. 2021, which is the common of estimates lately made by Fannie Mae, the Mortgage Bankers Affiliation, and the Nationwide Affiliation of Homebuilders. Additionally, the Joint Middle for Housing Research of Harvard College lately forecast that expenditures for enhancements and repairs to proprietor occupied housing are anticipated to develop by 16% in 2022 from 2021 and proceed to develop into early 2023 however at a decelerating tempo.
Flooring demand can also be pushed by nonresidential development, and the American Institute of Architects has projected annual will increase of 5.4% in 2022 and 6.1% in 2023 for this sort of spending.
Moreover, anecdotal proof from quite a few firms suggests that offer chain issues are waning, and for the close to time period many firms together with QEP are carrying considerably larger inventories than regular to mitigate this downside.
At a current inventory value of $22.50 with 3.3 million shares excellent, the corporate’s fairness is valued at $74.3 million. Internet debt is $49.9 million, so enterprise worth is $124.2 million.
Enterprise worth to adjusted EBITDA for the fiscal yr ending February 28, 2022 is 6.8x making the inventory look undervalued. At an enterprise worth to adjusted EBITDA a number of of 9.0x, which is an affordable valuation a number of, the inventory can be valued at $34.79 per share or about $35.00. For comparability the inventory traded at an all-time excessive of $36.20 in June 2021 and previous to that the all-time excessive was $36.00 in Could 2018.
QEP has a strong steadiness sheet as of February 28, 2022 that displays ample liquidity and manageable monetary leverage. Present ratio is 1.5x and web debt together with lease liabilities to adjusted EBITDA ratio is 2.7x. E book worth per share is $24.01.
Administration
Lewis Gould, who based the corporate and is now 79 years outdated, has been the important thing driver of the corporate. He’s now Govt Chairman and Chairman of the Board, and he owns 48.7% of the whole shares excellent. His son, Leonard Gould, is 53 years outdated and has labored in numerous positions at QEP since 1993 and is presently President and CEO, The Americas.
Inventory Itemizing
In 2009 QEP made the choice to voluntarily delist their inventory from Nasdaq to keep away from a number of the prices of being a public firm. Subsequently, the inventory traded on the OTC Markets Pink Sheets. Nonetheless, in October 2021 the corporate certified to improve from the Pink Sheets to OTCQX Finest Market, which is the highest tier of OTC Markets. Nonetheless, the inventory, which trades below the image QEPC could be very thinly traded with common each day buying and selling quantity of round 400 shares, and there’s normally a really extensive bid/provide unfold.
In October 2021 when the inventory was upgraded from the Pink Sheets to OTCQX Finest Market Lewis Gould acknowledged, “Upgrading to the OTCQX is a vital step for QEP. This transfer will improve our publicity throughout the funding group and supply larger entry to shareholders searching for to participate in QEP’s progress. This transfer additionally demonstrates our dedication to delivering a excessive customary of compliance, disclosure, and company governance.”
Actually, this upgrading has not elevated visibility or liquidity in any significant manner, nor does it appear to have had any noticeable impact on the value of the inventory. Consequently, this makes me imagine that the corporate will uplist to Nasdaq to get the elevated visibility and liquidity they need. With a Nasdaq itemizing the corporate is sufficiently big that it ought to get some sell-side analyst protection and elevated institutional possession, which may assist preserve the inventory from changing into considerably undervalued within the inventory market.
QEP presently doesn’t make SEC filings, however they do concern press releases every quarter that embrace revenue statements, steadiness sheets, and money circulation statements, which permit traders to watch the corporate’s efficiency. In addition they present some written commentary on enterprise developments, and the corporate makes numerous further disclosures together with audited monetary statements on the OTC Markets web site. Moreover, they host a phone convention name to debate monetary outcomes and reply questions.
Abstract
In abstract, the corporate is presently producing its highest gross sales and earnings within the final 10 years with additional will increase probably. Consciousness of the corporate and its inventory could be very restricted, and the inventory is considerably undervalued. A possible uplisting of the inventory to Nasdaq may very well be a catalyst that helps the inventory transfer larger.
