The home improvement industry’s prospects look steady, thanks to increasing urbanization and robust consumer spending. However, while I think quality home improvement stocks Tile Shop Holdings, Inc. (TTSH), Flexsteel Industries, Inc. (FLXS) might be solid investments now, Purple Innovation, Inc. (PRPL) might be best avoided, given its weak fundamentals.
The global home improvement market is expected to grow at a 6.4% CAGR to $514.90 billion by 2028. Rising disposable income, urbanization, and changing tastes drive the global home improvement market. Moreover, younger consumers seeking attractive and smart home upgrades are boosting growth.
Also, the DIY home improvement market is predicted to expand at a CAGR of 3.4% until 2028. In addition, federal tax credits to encourage homeowners to adopt energy-efficient home improvements are also supporting the industry.
However, the home improvement industry is dealing with a number of challenges, with most significant being the shortage of skilled laborers. As the demand for home renovation projects grows, there is a shortage of trained people to satisfy it. Another issue includes the growing material and supply costs, which can make it difficult for homeowners to spend money on renovations and improvements.
Take a detailed look at the stocks mentioned above:
Stocks to Buy:
Tile Shop Holdings, Inc. (TTSH)
TTSH operates as a specialty retailer of natural stone and synthetic tiles, setting and maintenance materials, and other related accessories. The Plymouth, Minn., company provides natural stone products, such as marble, travertine, granite, quartz, and synthetic products, including ceramic, porcelain, glass, cement, wood look, and metal tiles under the Rush River and Fired Earth brands.
TTSH’s forward EV/Sales of 1.07x is 10.9% lower than the industry average of 1.20x. Its forward Price/Sales of 0.70x is 22% lower than the industry average of 0.90x.
TTSH’s trailing-12-month ROTA of 4.39% is 20.5% higher than the 3.65% industry average, while its trailing-12-month gross profit margin of 65.35% is 85.1% higher than the industry average of 35.30%.
TTSH total liabilities came in at $223.44 million for the period that ended March 31, 2023, compared to $227.05 million for the period that ended December 31, 2022. Also, its total long-term debt came in at $25 million, compared to $45.40 million for the same period.
The consensus revenue estimate of $408.61 million for the year ending December 2024 represents a 2.8% increase year-over-year. Its EPS is expected to grow 19.1% year-over-year to $0.25 for the same period. It surpassed EPS estimates in three of four trailing quarters. TTSH’s shares have gained 86% over the past year to close the last trading session at $6.25.
TTSH’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TTSH has an A grade for Quality and a B for Sentiment. It is ranked #2 out of 57 stocks in the B-rated Home Improvement & Goods industry. Click here for the additional POWR Ratings for Stability, Growth, Value, and Momentum for TTSH.
Flexsteel Industries, Inc. (FLXS)
FLXS, together with its subsidiaries, operates as a manufacturer, importer, and online marketer of upholstered furniture for residential and contract markets in the United States.
FLXS’s forward Price/Book multiple of 0.77 is 71.6% lower than the industry average of 2.69. Its forward Price/Sales multiple of 0.25 is 72% lower than the industry average of 0.90.
FLXS’s trailing-12-month asset turnover ratio of 1.48x is 48.3% higher than the 1x industry average. Its trailing-12-month levered FCF margin of 8.55% is 117.7% higher than the 3.93% industry average.
FLXS’s operating income came in at $6.31 million for the nine months that ended March 31, 2022, up 106.7% year-over-year. Its net income increased 117.4% year-over-year to $4.62 million. Also, its EPS came in at $0.85, up 174.2% year-over-year.
Street expects FLXS’s revenue to increase 6.3% year-over-year to $415.69 million for the year ending June 2024. Its EPS is expected to grow 137.5% year-over-year to $1.90 in 2024. It surpassed EPS estimates in three of four trailing quarters. Over the past nine months, the stock has gained 18.8% to close its last trading session at $19.13.
FLXS’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, translating to Strong Buy in our proprietary rating system.
It also has an A grade for Value and Sentiment and a B grade for Growth and Momentum. It is ranked #4 within the same industry. Beyond what is stated above, we’ve also rated FLXS for Stability and Quality. Get all FLXS ratings here.
Stock to Sell:
Purple Innovation, Inc. (PRPL)
PRPL offers a range of branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets, and more. It develops its products through its proprietary gel technology GelFlex Grid, which differentiates its offerings from competitors.
PRPL’s forward EV/EBITDA of 30.89x is 208.8% higher than the industry average of 10x.
PRPL’s trailing-12-month EBIT margin of negative 8.10% compared to the industry average of 7.33%. Its trailing-12-month EBITDA margin of negative 4.31% compared to the industry average of 10.65%.
PRPL’s revenues decreased 23.6% year-over-year to $109.37 million for the fiscal first quarter that ended March 31, 2023. The company’s operating loss increased 19.7% from the year-ago quarter to $21.99 million. Also, its net loss increased 72.6% year-over-year to $23.30 million, while its loss per share increased 20% from the prior-year quarter to $0.24.
Analysts expect PRPL’s EPS to come in at negative $0.14 for the year ending December 31, 2023. The stock has lost 47% over the past six months to close the last trading session at $3.12.
It’s no surprise that PRPL has an overall D rating, equating to a Sell in our POWR Ratings system. It has a D grade for Sentiment. Within the same industry, it is ranked #51. To see additional ratings of PRPL for Growth, Value, Stability, Quality, and Momentum, click here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
TTSH shares were trading at $6.31 per share on Monday morning, up $0.06 (+0.96%). Year-to-date, TTSH has gained 44.06%, versus a 20.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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