Study on a recent Hot Stock -CENT
Recently, there has been a lot of coverage on this hot stock Central Garden & Pet Company. Stock symbol (CENT). It has been repeated covered by Zacks investment research. Articles were published within short periods on 10 Mar, 11 Mar and 14 Mar and 2 Apr. It caught my attention and I’ve decided to look further into the details. This has also been a stock in my personal watch list due to an earlier spike which you will get to see in the stock chart below. So what is going on with this stock and what is all the hype about? Let’s walk through some of the information gathered.
About Central Garden & Pet Company
Central Garden & Pet Company is a marketer and producer of branded products of pet and lawn and garden supplies in the United States. The Company focuses in two areas namely Garden Products and Pet Products. The Company’s pet supplies products include products for dogs and cats, including edible bones, premium healthy edible and non-edible chews, super premium dog and cat food and treats, toys, pet carriers, grooming supplies and other accessories; products for birds, among others. The company offers its products to mass merchants, home improvement centers, lawn and garden nurseries, grocery stores, specialty pet stores, veterinarians’ municipalities, and other individual animal buyers. Central Garden & Pet is also as one of the largest suppliers of pet and garden products to Wal-Mart, Home Depot, Lowe’s and PetSmart.
How Central Garden & Pet Company Charts caught my attention
Central Garden & Pet Company stock chart showed a long period of tight consolidation up till mid Aug 2015. It broke the consolidation, followed by a strong uptrend gaining 100% in stock price from $9 to $18 within a short 2.5 months. The strong uptrend was broken in late Oct 2015 and the stock price corrected over the next few months in mid Jan 2016. A few unusual spikes were also observed in early Dec and early Feb. I am using these spikes as the resistance areas. The nearest resistance (R1) at $16 was recently broken, and if the stock price is to continue it’s uptrend, will likely be hitting it’s next resistance (R2) at $17, and subsequently the next resistance (R3) at about $18.30.
How about Central Garder & Pet Company fundamentals
Here’s the press release on the 1st Qtr fiscal year results
The Company is increasing its guidance for the full year. It now expects adjusted earnings per fully diluted share to grow at least 35% for the year, to $1.00 or higher.
Fiscal 2016 First Quarter Financial Highlights
- The first quarter loss on a GAAP basis of ($0.18) included $14.3 million of charges related to the Company’s refinancing of its fixed rate notes. Excluding the charges, adjusted earnings rose to $0.01 from a loss of ($0.12) in the first quarter of 2015;
- Sales increased 17% to $359.8 million compared to $307.3 million in the first quarter a year ago; Approximately half of the growth was organic and half from acquisitions;
- Branded product sales increased 17% to $276.5 million compared to $237.0 million in the first quarter a year ago. Sales of other manufacturers’ products increased 18% to $83.3 million from $70.3 million in the first quarter a year ago;
- Gross profit increased 13% to $99.8 million compared to $88.0 million in the first quarter a year ago. Gross margin for the first quarter declined 90 basis points to 27.7% compared to 28.6% in the first quarter a year ago;
- SG&A expense increased $4.2 million for the first quarter but declined 300 basis points as a percentage of sales to 25.3% compared to 28.3% in the first quarter a year ago;
- Operating income increased to $8.8 million compared to $1.1 million in the first quarter a year ago;
- Operating margin increased 200 basis points to 2.4% compared to 0.4% in the first quarter a year ago;
- Net loss on a GAAP basis increased 51% to $8.6 million. Adjusted net income increased to $0.3 million compared to a loss of $5.7 million in the first quarter a year ago;
- Loss per fully-diluted share on a GAAP basis increased to ($0.18). Adjusted earnings per share rose to $0.01 compared to a loss of ($0.12) in the first quarter a year ago.
Zacks Investment Research also highlighted the company appears compelling from the earnings perspective as it continued to report positive earnings for consecutive six quarters including a positive surprise of 108.3% recorded in the last reported quarter (first quarter of fiscal 2016). Zacks Investment Research has also valuated the company’s fundamentals and Ranked the company #1 with buy (2).
I am not very certain why Zacks appeared to be so positive with the results even with a $8.6 million first quarter loss. (News link) The outlook does look promising with strong revenue growth in their Pet and Garden segments.
Pet Segment Fiscal 2016 First Quarter Results
First quarter net sales for the Pet segment increased $49.4 million, or 25 percent, from the same period a year ago to $248.7 million. Approximately 57% of the gain was due to acquisitions while the remaining 43% was organic growth.
Garden Segment Fiscal 2016 First Quarter Results
Net sales for the Garden segment increased 3% to $111.1 million, due primarily to stronger grass seed sales as well as higher sales of other manufacturers’ products. Grass seed sales benefitted from favorable fall weather. The gain in sales of other manufacturers’ products was due in part to increased distribution across multiple channels. The Garden segment’s branded product sales were $88.0 million in the first quarter of 2016 and sales of other manufacturers’ products were $23.1 million.
Looking at Insider tradings from SEC filings, you’ll notice that there has been more sells than buys. Also note that though it appeared that there were significant buys in the month of Feb, many of them were stock grants ($0.00). Even their CEO has been selling after reporting positive outlook! Something smells fishy here.
Looking at the reviews of their employees, generally it reflected poor leadership. Overall management rating obtains a 2.5 star rating out of 5. Below is a screen shot on two of the comments, just to get a flavor or it.
From a chart and a media coverage point of view, thing looks really rosy and this could be the power of strong media coverage. Looking from the inside however reflects a different picture. What really drives price movements is supply and demand. Going back to the charts, this stock is definitely still on its short term uptrend. There should be good potential to break it’s next resistance (R2) but will face pressure to clear (R3) as that was also the point where some traders got in and got trapped when it broke it’s prior strong uptrend.