Institutional Activity Picks Up For The Lovesac Company
The institutions bet big on The Lovesac Company (NASDAQ: LOVE) late in 2021 and they’ve double-down on their holdings in the time since. When we last reported on the institutional activity, the institutions had been net buyers for 8 consecutive quarters and held about 96% of the stock. Since then, they’ve extended the trend to a full 10 quarters of net accumulation and have the total ownership nearing the 98% mark. Based on the 2nd quarter activity and the Q2 results, we think the institutions will soon hold as close to 100% of the shares as is possible and may technically soon own more of the company than actually exists.
What we’re talking about is the still very high 15% short interest that suggests to us a battle is raging between the bulls and the bears. The company’s short-interest has been high for the last few quarters and played no small part in the stock's decline. The takeaway is the short interest is more than enough to fuel a solid short-covering rally if not an outright squeeze and there are signs a squeeze could be brewing. The calendar 2Q results from competitor Basset Furniture suggest the furniture industry at large is doing much better than the analysts had feared and that is on top of The Lovesac Company’s robust growth story. The company has taken the furniture world by storm and has been growing its revenue at a high, sustained double-digit rate bordering on hyper-growth.
The Analysts Are Buying The Lovesac Company
The analysts are bullish on The Lovesac Company as well. The consensus rating of 5 research reports issued since the start of the year is a solid Buy with a price target nearly 250% above the current price action. The takeaway here is the consensus target is coming down from the lofty levels set earlier in the year but it is still offering a substantial amount of upside. Even the low price target of $70, which was set very recently, is still offering more than 100% of upside and that is because of results.
The FQ1 results were not only strong but outpaced the consensus by over 1200 basis points and growth was accelerating. The best news from the report is that inventory and supply chain issues were largely mitigated due to the small number of SKUs and overlapping production footprint. Looking forward, the analysts are expecting YOY growth to slow to a mere 30% in the current quarter and we think that is underestimating the industry and the business. Lovesac offers an easy, attractive solution for families, individuals, and businesses and reaping the benefits of word-of-mouth advertising.
The only downside to The Lovesac Company stock is the lack of dividends. Most other furniture companies are paying healthy, growing dividends and buying back shares as well. We can overlook this, in the case of The Lovesac Company, because the company is investing in growth and still has a long way to go before maxing out its addressable market. Between then and now, we are expecting to see share prices rebound and retest the all-time highs if not surpass them.
The Technical Outlook: LOVE Is Ready To Rebound
The price action in LOVE has been trending lower over the past few quarters but we think that will change soon. The Lovesac Company is not only trading at the lowest levels in over 18 months but it is also sitting above support with diverging indicators and positive catalysts in the works. Assuming the stock maintains support at or above the $25 level, we see it starting to form a bottom and entering a reversal by the time the next earnings reporting period comes around. If not, this stock could fall down into the single digits but we don’t think that will happen.