Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Does the Retail Apocalypse Doom Ethan Allen?

Mr. Market is missing one of the biggest news stories of the century, the Retail Apocalypse. The price of many retail stocks is exploding as brick and mortar stores collapse before our eyes.

For instance, Mr. Market paid $11.39 for Ethan Allen Interiors Inc. (NYSE: ETH) on 21 May 2020. The Ethan Allen share price rose to $29.39 on 27 May 2021.

Conversely, Ethan Allen (ETH) reported a $18.99 million quarterly operating income on 31 March 2021. The quarterly operating income rose from  – $75,000 on 31 March 2020.

Thus, Ethan Allen makes a tiny amount of money yet its share price is rising.

Is Ethan Allen Growing?

I think the share price is rising because Ethan Allen’s quarterly revenues rose from $149.77 million on 31 March 2020 to $176.86 million on 31 March 2021.

In comparison, Ethan Allen’s quarterly gross profit rose from $83.79 million on 31 March 2020 to $101.16 million 31 March 2021. Thus Ethan Allen is a growing company, but the growth is small.

On the other hand, Stockrow estimates Ethan Allen’s revenues grew by 18.15% in the quarter ending on 31 March 2021. In comparison those revenues fell by -15.78% in the quarter ending on 31 March 2020.

I suspect Ethan Allen (ETH) is not a growing company. Instead, Ethan Allen is regaining some of the revenue it lost during COVID-19 pandemic. The customers who stayed away during the coronavirus crisis could come back.

Therefore, I predict Ethan Allen’s growth could reverse soon. Notably, Stockrow estimates that Ethan Allen’s revenues shrank by -11.45% in the quarter ending on 31 December 2019. That was the last quarter before the pandemic.

How Much Cash Does Ethan Allen Generate?

Ethan Allen’s quarterly operating cash flow grew from $23.67 million on 31 March 2020 to $45.42 million on 31 March 2021.

Conversely, Ethan Allen’s quarterly ending cash flow fell from $88.56 million on 31 March 2020 to $28.92 million on 31 March 2021. On the other hand, Ethan Allen borrowed most of that cash. The company reported a $69.83 million quarterly Financing cash flow on 31 March 2020.

However, Ethan Allen’s total debt shrank in 2020. Ethan Allen (NYSE: ETH) had $247.25 million in Total Debt on 31 March 2020. The Total Debt shrank to $132 million on 31 March 2021.

What Value Does Ethan Allen have?

Okay, Ethan Allen Interiors (NYSE: ETH) grew and paid debt during a pandemic but what is it?

Ethan Allen is a vertically integrated furniture retailer with around 300 stores around the world. Vertically integrated means Ethan Allen manufactures much of the furniture it sells. The founders named Ethan Allen for Revolutionary War hero Ethan Allen. Allen was a Vermont pioneer and a Colonel in George Washington’s Continental Army.

Ethan Allen markets simple New England style furniture to a middle-class audience. It even sells a Disney-themed collection. Ethan Allen also some home furnishings including mirrors, bedding, drapery, and wallpaper.

I think COVID-19 caused Ethan Allen’s recent success. COVID-19 trapped people at home so they are buying more home furnishings to upgrade their living quarters.

Ethan Allen is catering to people stuck at home with its Premier In-Home Delivery. The Premier In-Home Delivery service ships furniture and furnishings straight to people’s homes.

Ethan Allen’s overall value is small; however. The company had $687.55 million in Total Assets on 31 March 2021, down from $703.10 million a year earlier. The company also had $108.96 million in cash and short-term investments down from $116.87 million on 31 March 2021.

Is Ethan Allen a Meme Stock?

Hence, Mr. Market is paying almost three times as much for a company that lost value over the past year. I think the price increase shows Ethan Allen (ETH) could be a meme stock.

Meme stocks’ share prices grow because of the amount of chatter about them on social media. Social media not performance or value characteristics determines the price of a meme stock, The Balance notes. In particular, the share prices of Reddit favorites; such as BlackBerry (NYSE: BB) and AMC Entertainment (NYSE: AMC), have exploded over the past year.

A meme stock is usually a share of an old company with a well-known brand. I think Ethan Allen meets that criteria. There has been some discussion of Ethan Allen online.

Notably, Forbes reports that the artificial intelligence picked Ethan Allen as a trending stock on 20 May 2021. The artificial intelligence from Quantalytics AI Labs monitors the markets and media to identify trending stocks.

Is Ethan Allen a Good Stock?

I think Ethan Allen (ETH) is a lousy stock. I consider Ethan Allen a poor investment because it makes small amounts of money.

Ethan Allen, however, pays an impressive dividend. Ethan Allen will pay a 75₵  bonus dividend on 25 May 2021. Ethan Allen will pay a 25₵ quarterly dividend on the same day. The quarterly dividend grew from 21₵ on 22 October 2020.

Overall, Ethan Allen offered a 96₵ forward annualized dividend and a 3.57% dividend yield on 27 May 2021. The dividend is excellent, but I think Ethan Allen is a risky company.

Remember, Ethan Allen’s revenue growth was shrinking before the pandemic. If vaccination leads to a return to normalcy, Ethan Allen’s revenue growth could start shrinking again. Additionally, Ethan Allen’s assets shrank in 2020.

Therefore, I think Ethan Allen could collapse. I think Ethan Allen could soon become a victim of online competition and the Retail Apocalypse. Thus, Ethan Allen has a low margin of safety.

Under those conditions I advise investors to avoid Ethan Allen. I think the retail apocalypse will soon destroy this furniture retailer.