Catalysts:
Company transitioning in the ecommerce era by targeting women age 35-55 (not really affected by “influencer” marketing on social media
High retention rate among customers
Market leader with moat
Pandemic boon for business
Risks:
High debt
Competition with ecommerce businesses such as Amazon or Walmart will be hard
Financial Analysis:
Valuations:
My personal Biases:
I’m afraid of the debt and the inability of the company to refinance it - gut feeling
I don’t think the company should be returning money to shareholders right now
Assumptions:
2021 numbers same as TTM for simplicity
Revenue growth of 4%, 3%, 20%, and 5% respectively for QxH, QVC International, Zulily, and others
Operating margins of 14%, 14%, -10%, and -5% respectively for QxH, QVC International, Zulily, and others
80% of operating income converted into net income
FCF margin 2 percentage points higher than net income margin
Let’s see a scenario where the company maximizes repayment of debt
Enough cash left to return to shareholders
Discount rate of 18% for FCF
Terminal growth rate of 2%
Margin of safety of 30%
Exit Multiples based on P/FCF Ratio
Sales 10% higher in bull case and 20% lower in bear case
Shares outstanding stays the same
Conclusion
Looks undervalued but I will need to do further research to consider making an investment
