Hamilton Beach Brands: An attractive way to play in the small appliance market (NYSE: HBB)

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Buying into a company that produces and sells home appliances and selects commercial products may not seem like an exciting prospect. However, some companies in the space are trading at low levels and have a track record of attractive liquidity. flows. One such company to consider is Hamilton Beach Marks (NYSE: HBB). Despite some volatility in its turnover and results in recent years, the overall situation of the company is positive. Although the economy as a whole is affected by inflation, management believes that the overall fundamentals for the business remain strong. Overall, this leads to an attractive, value-oriented outlook that investors should pay close attention to.

A little game about appliances

According to the management team of Hamilton Beach Brands, the company acts as a producer and seller of small appliances and specialty household items. Besides that, it also sells commercial products for restaurants, fast food chains, bars, and hotels. Examples of these products include coffee makers, toasters, blenders, ovens, juicers and more. In addition to owning its own brands, the company also licenses other players’ brands. A good example is Clorox (CLX). For this particular line, the company sells air purifiers. It also sells purifiers under the TrueAir brand and sells a wide variety of branded personal care products under Brightline. These are just a few of the company’s many different brand lines. Another important thing to note is the company’s sales concentration. Its largest client, in its 2021 fiscal year, was walmart (WMT). It accounted for 28% of the company’s sales that year. A close second was Amazon (AMZN), which accounted for 22% of sales. In total, the company’s five largest customers accounted for 61% of revenue last year.

Historical financial data

Author – SEC EDGAR Data

Over the past five years, Hamilton Beach Brands has experienced some volatility in sales. For example, from 2017 to 2018, revenues went from $612.2 million to $629.7 million. Over the next two years, sales plummeted, eventually falling to $603.7 million. The good news for investors, however, is that 2021 saw a nice rebound, with revenue of $658.4 million. Of the sales increase recorded from 2020 to 2021, $37.1 million was attributed to unit volume and product mix. The company benefited by an amount of $4.8 million due to foreign currency fluctuations. Meanwhile, average selling price increases added another $12.8 million to its revenue. For fiscal year 2022, management did not provide detailed guidance. However, they expect “moderate” revenue growth compared to 2021. This should occur despite weak sales in the first half of 2022 compared to the same period last year.

When it comes to its results, the picture has also been volatile. After seeing that revenue grow from $17.9 million in 2017 to $21.8 million in 2018, the company then generated a net loss of $13.5 million in 2019. That was short lived, however. duration, with profits totaling $46.3 million in 2020, then declining to $21.3 million. in 2021. Cash flow from operations has been equally volatile. Over the past five years, this metric has ranged from a low of minus $27.9 million to a high of $28.3 million. It should be noted that from 2017 to 2020, operating cash flow deteriorated year after year. Then, last year, it turned positive at $17.9 million. If we adjust for changes in working capital, the picture was much more consistent. Cash flow ranged from a low of $24 million in 2019 to a high of $41.1 million a year earlier. In 2021, this measure amounted to $32.6 million. This is what the business generated in 2020. And finally, we have EBITDA. Like adjusted cash flow from operations, EBITDA has moved in a fairly narrow range between $33.6 million and $46.1 million over the past five years. Last year was the high point, with the company generating $37.5 million in EBITDA. Management refrained from giving specific guidance for 2022. But it said it expects operating profit to be slightly higher than the company’s last year.

Trading multiples

Author – SEC EDGAR Data

Given the data we currently have, it is not difficult to price the company. Using the price/earnings approach, for example, and drawing on data from the company’s fiscal year 2021, we can calculate that it is trading at a multiple of 6.9. The price of adjusted operating cash flow multiple is even lower at 4.5. And finally, the EV/EBITDA multiple is 6.5. In absolute terms, all of these numbers are low. So low, in fact, that Hamilton Beach Brands should be considered a highly desirable prospect if its fundamental situation continues. Now, as part of my analysis, I decided to compare the company to five similar companies. On a price-earnings basis, these companies ranged from a low of 8.4 to a high of 46.9. On a price/adjusted operating cash flow basis, the range was 15.6 to 86, with one of the five companies not having a positive result. If this statement is true for the EV to EBITDA approach, the range for companies that had a positive reading was 12 to 34.1. In all three scenarios, Hamilton Beach Brands was the least expensive of the bunch.

Company Prizes / Earnings Price / Operating Cash EV / EBITDA
Hamilton Beach Marks 6.9 4.5 6.5
Viomi Technology (VIOT) 8.4 N / A N / A
iRobot (IRBT) 46.9 43.4 34.1
Cricut (CRCT) 19.9 84.9 12.2
Helen of Troy (HELE) 24.7 86.0 19.2
Presto National Industries (NPK) 21.1 15.6 12.0

Take away

Based on the data provided, it seems to me that Hamilton Beach Brands is an incredibly inexpensive business capable of generating attractive cash flow over a period of time. Admittedly, the company’s fundamentals are volatile from year to year. But the overall picture is appealing. Couple that with the aforementioned low stock price, and investors would be wise to consider the company before passing it on.

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