🚚 UNFI or United Natural Foods Inc. $UNFI is the latest addition to my portfolio and in just a couple of weeks, it became the third largest position in my portfolio with over 40% profits. UNFI last earnings were great, they recently extended their deals with Amazon $AMZN for another 2 years. Some people are even talking about a short squeeze since over 20% of shares outstanding are short.
🚚 They are the 𝙡𝙖𝙧𝙜𝙚𝙨𝙩 𝙬𝙝𝙤𝙡𝙚𝙨𝙖𝙡𝙚 𝙛𝙤𝙤𝙙 𝙙𝙞𝙨𝙩𝙧𝙞𝙗𝙪𝙩𝙤𝙧𝙨 𝙞𝙣 𝙉𝙤𝙧𝙩𝙝 𝘼𝙢𝙚𝙧𝙞𝙘𝙖 with over 30 000 customers, including natural product superstores, independent retailers, conventional supermarket chains, ecommerce retailers and food service industry. They have a moat in organic and natural foods which is growing at a fast rate. Their largest customer is Whole Foods, owned by Amazon.
📉 𝙒𝙝𝙮 𝙞𝙨 𝙩𝙝𝙚 𝙨𝙩𝙤𝙘𝙠 𝙙𝙤𝙬𝙣 𝙨𝙤 𝙢𝙪𝙘𝙝?
1. They took much debt to make the acquisition of Supervalu in 2018
2. Fear of them losing their largest customer (15% of 2020 revenues) but this didn't happen as the deal with Amazon got extended till 2027
3. Negative earnings in 2018 and 2019 - these were mostly from impairment of goodwill and not from business operations as cash flows were still positive
4. $225 million in pension liabilities with unionized workers
💰 The 𝙢𝙖𝙞𝙣 𝙥𝙧𝙤𝙗𝙡𝙚𝙢 𝙧𝙞𝙜𝙝𝙩 𝙣𝙤𝙬 𝙞𝙨 𝙩𝙝𝙚 𝙙𝙚𝙗𝙩 and they can repay with the cash flow they are generating. Besides, they are selling their retail stores from the acquisition to generate more cash. In the extreme case scenario which I've looked at, they can repay all their debts by 2025 but no company would do that.
🩳 Sooner or later, Mr Market will realize that this stock is undervalued. Right now the stock is heavily shorted (more than GameStop $GME )and we may have a 𝙨𝙝𝙤𝙧𝙩 𝙨𝙦𝙪𝙚𝙚𝙯𝙚 but it won't be like with GameStop or RH but rather like the one with Tesla $TSLA . Although a short squeeze is a possibility, this is not the main reason why we should look at this stock. We need to focus on the fundamentals.
🍊 Let's just do a simple comparison with Tesla. They have about the same revenues, about $27 billion, UNFI has a better balance sheet, is profitable and has a more sustainable business. While everybody is expecting Tesla to be a tenbagger from a $600 billion valuation, it is expected that UNFI will underperform from a $1.8 billion valuation. This is another 𝙚𝙭𝙖𝙢𝙥𝙡𝙚 𝙤𝙛 𝙖 𝙢𝙖𝙧𝙠𝙚𝙩 𝙞𝙣𝙚𝙛𝙛𝙞𝙘𝙞𝙚𝙣𝙘𝙮. We should of course, not compare apples with oranges but UNFI is certainly a tenbagger potential, that is, a gain of 10X or 900% in 10 years or less.
I won't say that the probability of it being a tenbagger is that high but it is a possibility. In any case, we can expect above average market returns from UNFI with a high probability.
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