UNFI Stock is a Potential Tenbagger
๐ 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.
๐ They are the ๐ก๐๐ง๐๐๐จ๐ฉ ๐ฌ๐๐ค๐ก๐๐จ๐๐ก๐ ๐๐ค๐ค๐ ๐๐๐จ๐ฉ๐ง๐๐๐ช๐ฉ๐ค๐ง๐จ ๐๐ฃ ๐๐ค๐ง๐ฉ๐ ๐ผ๐ข๐๐ง๐๐๐ 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.
๐ ๐๐๐ฎ ๐๐จ ๐ฉ๐๐ ๐จ๐ฉ๐ค๐๐ ๐๐ค๐ฌ๐ฃ ๐จ๐ค ๐ข๐ช๐๐?
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
๐ฐ The ๐ข๐๐๐ฃ ๐ฅ๐ง๐ค๐๐ก๐๐ข ๐ง๐๐๐๐ฉ ๐ฃ๐ค๐ฌ ๐๐จ ๐ฉ๐๐ ๐๐๐๐ฉ 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.
๐ฉณ 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 ๐จ๐๐ค๐ง๐ฉ ๐จ๐ฆ๐ช๐๐๐ฏ๐ 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.
๐ 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 ๐๐ญ๐๐ข๐ฅ๐ก๐ ๐ค๐ ๐ ๐ข๐๐ง๐ ๐๐ฉ ๐๐ฃ๐๐๐๐๐๐๐๐ฃ๐๐ฎ. 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.
Watch the full video on YouTube:
https://www.youtube.com/watch?v=ospvxxRDDvQ&list=UUPO3uUyoXSaFWG-Ldq1mqEQ&index=1
Hereโs the full analysis of UNFI:
https://ishfaaqpeerally.teachable.com/courses/662813/lectures/31015174
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