SharkNinja Inc (NYSE:SN) is approaching its first anniversary as a publicly listed company with the stock up nearly 150% from its debut price. Indeed, investors have a lot to celebrate as the company recently crossed above a $10 billion capitalization as one of the market’s newest large-caps.
The story here has been the impressive operating and financial momentum, with SharkNinja a notable exception compared to several high-profile retailers and other consumer product leaders citing more challenging sales conditions.
Indeed, SharkNinja appears to be capturing market share with its portfolio of tech-powered kitchen appliances and household goods connecting with consumers. The brand strength we’re witnessing supports a positive outlook for the company and likely more upside for the stock.
SN Financials Recap
SharkNinja last reported its first-quarter results (for the period ended March 31) in early May with EPS of $1.06, coming in $0.09 ahead of estimates, and also up from $0.86 in the prior-year quarter. Revenue of $1.1 billion also beat expectations, climbing 27% year-over-year on an adjusted basis.
Management is citing strong demand across all its core segments. Cleaning appliances, which represent approximately 41% of the business, posted adjusted sales growth of 5.9%. The trend was even stronger from the Cooking and Beverage Appliances group with adjusted sales growth of 29% and the smaller Food Preparation Appliances segment with 77% growth.
The introduction of products in new categories such as outdoor grills, ice cream makers, and portable blends has been well received by consumers. The company has also gained traction internationally including Europe.
The result is that margins are up and Q1 adjusted EBITDA of $230 million climbed by 30% year-over-year.
What’s Next for SharkNinja
The Q1 trends were strong enough for management to update full-year guidance. SharkNinja now expects 2024 adjusted net sales growth between 12% and 14% compared to the prior 8% midpoint target.
The company is also guiding for an EPS range of $3.66 to $3.85, representing an increase between 14% and 19% from 2023, revised from the prior midpoint 9.5% growth rate forecast.
A major theme for the company has been its ability to grow market share in key product categories, particularly in the United States and the United Kingdom. For example, SharkNinja captured 32% of robot vacuum sales in the U.S. last year, up from 20% in 2020. In the U.K., the company controls nearly 60% of food fryers, more than tripling since 2020.
Looking at these figures, we make the connection that a part of SharkNinja’s success has come at the expense of key competitors like iRobot Inc (IRBT) in the robotic vacuum space, or Helen of Troy Holdings Inc (HELE) with a brand portfolio of household goods.
We bring these two up as both companies have specifically cited weaker demand as an explanation for poor sales in these categories which is in contrast to SharkNinjas’s breakout.
Our takeaway is that the brand is gaining followers with a halo effect where customers of one product become more likely to purchase more SharkNinja products in the future.
Management has cited this dynamic as part of its optimism that the company is still in the early stages of a major growth cycle. We agree. From the last earnings conference call:
I think if you walk to retail stores and you saw the placement that SharkNinja has, I think retailers are betting on us. I think they’re supporting us with incremental SKU placements and stack-outs and additional locations. I think they’re counting on us for the innovation that we’re bringing to market and the demand that we’re creating.
In terms of valuation, we make the case that shares of SharkNinja trading at 12.6x management’s 2024 adjusted EBITDA guidance may still be undervalued even following the big rally.
While the earnings multiple represents a premium to direct competitors within household appliances like Whirlpool Corp (WHR) or Helen of Troy, the distinction here is SharkNinja’s significantly stronger growth.
We believe a better comparison is against companies that are recognized for their brand such as Nike Inc (NKE) in apparel, Celsius Holdings Inc (CELH) in beverages, or even Apple Inc (AAPL) in tech. In this case, SN stands out as a bargain with room for an expansion of its valuation multiple.
Is SharkNinja a Buy?
We rate SN as a buy with a price target of $100 for the year ahead implying a 15x EV to forward EBITDA multiple. In our opinion, SN’s valuation has room to reprice higher to reflect its positioning as a global brand and consumer products innovator.
The main risk to consider would be the possibility that growth begins to disappoint either from a macro shock or poor execution. A scenario where economic conditions deteriorate would pressure consumer spending and likely hit sales, opening the door for a reassessment of the earnings outlook. Similarly, weaker-than-expected earnings over the next few quarters would drive a new round of volatility into the stock.
Monitoring points for the rest of 2024 include the trend in margins and cash flow as well as updates on new product launches and the company’s global expansion.
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