Undiscovered Growth Stock Trading at Only 5% of Trailing 12-Month Sales
RedChip has recently discovered a thinly traded growth stock investing in an attractive area of the private equity markets that trades for a valuation equivalent to just 5% of its trailing 12-month sales.
The company is 1847 Holdings (OTC: EFSH) and was founded by a 20+ year veteran of the private equity markets, Ellery Roberts, who serves as CEO.
Why does this stock trade at such a low valuation? Simple answer: no one knows about it, yet.
As investors learn about this company, which plans to make cash distributions to shareholders like traditional private equity funds, the share price is likely to move to a more realistic valuation. At even 1x sales, this could translate to a 20x return for investors buying at current prices.
Preferred Shares Pay Quarterly Distributions At 12% Per Annum Rate
First Acquisition Generating Double-Digit Growth
EFSH completed its first private equity investment in March 2017 with the acquisition of Neese, Inc.
Headquartered in Grand Junction, Iowa and founded in 1991, Neese is an established business with a revenue mix composed of waste disposal and a variety of agricultural services, wholesaling of agricultural equipment and parts, local trucking services, various shop services, and other products and services.
For the year ended December 31, 2018, Neese generated $7.3 million in revenue, up 14% from $6.4 million in the year prior.
EFSH Owns Third Largest Independent eCommerce Retailer of Appliances in the US
In April 2019, EFSH completed its acquisition of Goedeker Television.
Founded in 1951 and headquartered in St. Louis, Missouri, Goedeker is a one-stop e-commerce destination for home furnishings, including appliances, furniture, bath and kitchen fixtures, décor, lighting and home goods.
Goedeker has evolved from a local brick and mortar operation serving the St. Louis metro area to a large nationwide omnichannel retailer generating more than $56 million in revenue in the 12-months ended December 31, 2018.
While Goedeker still maintains its St. Louis showroom, over 90% of sales are placed through its website at www.goedekers.com, which offers over 500,000 SKUs, organized by category and product features, providing visitors to the site an easy to navigate shopping experience.
Signed LOI to Acquire Multi-State Retail Hydroponic Supply Operation
In January, EFSH signed an LOI to acquire a multi-state hydroponic supply operation.
Commenting on the acquisition, EFSH founder and CEO Ellery Roberts stated, “This acquisition will give 1847 the ability to participate in the high-growth hemp and cannabis market without touching the plant or incurring the burdensome regulatory requirements and challenges of traditional cannabis operations focused on cultivation and end-product sales.”
A publicly traded peer in the space, GrowGeneration (NASDAQ: GRWG), currently trades for a market cap of nearly $200 million on $63 million in trailing 12-month revenue.
While the amount of revenue generated by the proposed acquisition has not been disclosed yet, based on EFSH’s acquisition criteria, investors can expect the company to generate positive EBITDA and revenues north of $7.5 million on the low end.
Combined with the trailing 12-month revenue of its previously acquired companies, this could push total EFSH revenues to $75 million or more, making the company’s $4 million current valuation that much more undervalued.
Targeting Opportunities in Lower-Middle Market with $1M+ EBITDA
EFSH targets lower-middle market companies with at least $1 million in EBITDA in the trailing 12-month period.
Lower-middle market companies, as defined by EFSH, are those with revenue of between $7.5 million and $50 million. This is an attractive and large market segment, representing approximately 90% of all private companies in the US.
Despite its overall size and attractive investment characteristics, the lower-middle market is often overlooked by larger private equity funds. In fact, it’s estimated 90% of private equity capital is deployed in middle market and larger deals.
Baby Boomer Retirements Driving Deal Flow in Lower-Middle Market
Many lower-middle market businesses are owned by members of the Baby Boomer generation.
In 2012, “Baby Boomer retirement” became the primary driver of business sales in the private lower middle market, a trend that is anticipated to persist for years to come.
Researchers have estimated that more than $10 trillion in business assets may be transferred by 2025.
This trend places EFSH in an advantageous position, with a potential onslaught of sellers and limited buyers.
Highly Experienced Leadership Team
EFSH is led by CEO Ellery Roberts. As the founder of 1847, Roberts brings over 20 years of private equity investing experience to the team. During his career, Roberts has been directly involved with over $3 billion in direct private equity investments.
Prior to founding 1847, Roberts formed RW Capital Partners LLC, an investment manager approved by the Investment Committee of the U.S. Small Business Administration in 2010 to raise and manage a Small Business Investment Company.
Prior to founding RW Capital, Roberts was a Managing Director of Parallel Investment Partners LP (formerly SKM Growth Investors LP), a Dallas-based private equity fund focused on recapitalizations, buyouts and growth capital investments in lower-middle market companies throughout the US, where he was responsible for approximately $400 million in invested capital across two funds.
Previously, Roberts was a principal with Lazard Freres & Co. working in their Real Estate Principal Investment Area, where he was a senior team member involved in the investment of over $2.4 billion of capital.
Roberts also worked at Colony Capital, prior to joining Lazard in 1997, where he analyzed and executed transactions for Colony Investors II, a $625 million private equity fund.
Roberts is joined by EFSH Managing Director Edward Tobin.
Tobin was previously a Director of Global Emerging Markets North America (GEM), where for 15 years he managed Special Situations and Venture investing for GEM’s Partners Capital Fund. Tobin was also a principal and on the investment committee of the MENA Fund, a Shari’ah compliant private equity fund which was a joint venture between GEM and VC Bank, itself a Shari’ah compliant bank based in Bahrain.
While at GEM, Tobin oversaw structured finance transactions in industries such as clean tech, consumer/retail, alternative finance, media, telecommunications, manufacturing, retailing, real estate and life sciences.
Prior to joining GEM, Tobin was Managing Director of Lincklaen Partners, a private family investment office.
Previously, he had been a portfolio manager with Neuberger and Berman, managing both pension funds and private client capital in the public equity markets. Prior to N&B, he was a Vice President of Nordberg Capital.
Low Valuation Provides Opportunity for Massive Share Price Gains
Trading for a market cap of just $4 million, the potential upside for EFSH is huge.
If it were to trade near 1x sales, similar to its only public comp, Compass Diversified Holdings (NASDAQ: CODI), the shares could trade more than 1,500% higher than their current price range.
Add in the potential for future cash distributions, paid out of cash flow or from the sale of portfolio holdings, and the opportunity becomes even more attractive.
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