Pitch – Gear4Music (LON: G4M)
Gear4music collections (LON: G4M) is a UK leader in online sales of musical instruments and equipment which is growing rapidly throughout Europe.
Started in 2003 by Andrew Wass, current CEO and 30% shareholder, revenue has grown every year since its inception and has grown from £ 12million in fiscal 2013 to £ 157.5million sterling in FY 21. The European musical instrument market is estimated at around £ 5 billion, which points to further growth.
There is competition with Thomann, but G4M was designed from the start as a website-based e-commerce platform and has invested in its own software and logistics capabilities.
Despite this obvious specialization and the recent revaluation, G4M is trading at a notable discount to other online retailers such as BooHoo and Asos. On this basis, actions were launched at Stockopedia Investment Club on May 20, 2021 at 890p per share.
There is no doubt that companies have been aided by the Covid lockdowns, so there is a possibility that the recent outperformance will return to some extent.
That said, brokers expect a drop of more than 50% in net income over the coming year. Is this caution justified or are G4M’s growth prospects unduly dismissed?
Bull points: growth in turnover over several years and market share gains in several territories (growth in sales every year since 2003); improved profitability; trades with a P / S discount on other e-commerce stocks; UK and European operations; end-to-end proprietary e-commerce platform; founder-owner CEO; range of own-brand products built up over 17 years; efficient logistics system
Bear points: increase in Covid trade could subside; profitability has been an issue in the past; looks expensive on the basis of TTM; easy rerate has already taken place
About the action:
Gear4music is a Cyclical consumption company in the Specialized retailers industrial group.
He negotiates on the LSE AIM Market, with a market capitalization of £ 183.3million. Liquidity is a slight issue – although you can buy around £ 6,500 of shares in the market, the spread is 343bp.
The group is classified as a Speculative Small cap Neutral, despite being on the cusp of becoming High Flyer, with a Q rank of 93, V rank of 45, and M rank of 76.
The stock price leveled off recently after a dramatic rally, but relative strength measures remain positive. Meanwhile, the 5-year revenue CAGR is 37.8% and the operating profit CAGR is around 80.7%.
Most of this profit growth has come …